When Can You Claim Qualified Adoption Expenses on Your Taxes?

Adopting a child can be expensive, but the IRS offers financial relief through the adoption tax credit. This credit helps offset costs associated with the process, reducing overall tax liability. Knowing when to claim these expenses is essential to maximizing benefits.

Understanding the timing and eligibility rules for reporting qualified adoption expenses ensures families don’t miss out on valuable tax savings.

Qualifying Adoption Expenses

Not all costs qualify for the tax credit. The IRS defines eligible expenses as necessary and reasonable costs directly related to legally adopting a child. These must be out-of-pocket expenses and cannot be reimbursed by an employer, government program, or other sources.

Agency Fees

Adoptive parents often pay significant fees to agencies that facilitate the process, conduct home studies, and ensure legal compliance. These fees can range from a few thousand dollars to over $40,000, depending on the agency and type of adoption.

The IRS allows families to claim payments made to both public and private agencies, including costs for required counseling, background checks, and administrative expenses. If an adoption attempt is unsuccessful, some agency-related costs may still qualify. However, expenses related to surrogate parenting or adopting a spouse’s child are not eligible.

Court Costs

Legal fees are a major expense, as court proceedings are required to establish parental rights. These include filing petitions, obtaining adoption decrees, and attorney fees. Depending on the case, legal expenses can range from a few hundred to several thousand dollars.

Adoptive parents can claim costs for required documentation, such as birth certificate amendments and termination of parental rights. If multiple court hearings are necessary, the associated costs may be eligible. However, legal fees related to custody disputes or unrelated matters cannot be claimed.

Travel Expenses

For families adopting from another state or country, travel costs can add up quickly. Qualified expenses include airfare, lodging, and meals incurred while completing the process. If multiple trips are required, each eligible trip’s costs can be claimed.

The IRS allows parents to claim reasonable transportation costs, including rental cars, taxis, and mileage for adoption-related travel. However, luxury accommodations and first-class airfare do not qualify. If both parents must travel, expenses for each individual can be included. Personal vacations taken before or after the adoption process, even if in the same location, are not eligible.

Timing for Reporting on Tax Returns

When to claim adoption expenses depends on when they were incurred and whether the adoption has been finalized. The IRS has specific rules for reporting these costs.

For domestic adoptions, qualified expenses paid before finalization can generally be claimed in the tax year following the payment. For example, if agency fees or legal costs were paid in 2023 for an adoption still in progress, those expenses would be reported on the 2024 tax return. Once the adoption is legally completed, any additional expenses incurred in that same year can be claimed on that year’s return.

International adoptions follow different rules. Parents can only claim expenses after the adoption is finalized. Any costs paid before legal completion must be deferred until the year the adoption is officially recognized under U.S. law. If the process spans multiple years, parents must wait until the finalization date before claiming any accumulated expenses.

If an adoption attempt does not result in a finalized adoption, the treatment of expenses depends on whether it was domestic or international. For domestic adoptions, costs can still be claimed even if the process was unsuccessful. However, for international adoptions, expenses from an unsuccessful attempt cannot be claimed.

Filing Guidelines for Adoption Tax Credit

Claiming the adoption tax credit requires accurate documentation and adherence to IRS procedures. The credit is non-refundable, meaning it can reduce federal income tax liability to zero but does not result in a cash refund. However, any unused portion can be carried forward for up to five years.

To claim the credit, taxpayers must complete IRS Form 8839, Qualified Adoption Expenses, and attach it to their Form 1040. This form requires a breakdown of expenses and the year they were paid. The IRS may request supporting documentation such as receipts, invoices, and court records. If an employer provides adoption assistance, any reimbursed amount must be separately reported on Form 8839, as it can qualify for an exclusion from taxable income but cannot be double-counted for the credit.

Income limits apply, with a phase-out range based on modified adjusted gross income (MAGI). For 2024, the credit begins to phase out at $252,150 and is eliminated for taxpayers earning $292,150 or more. These thresholds are adjusted annually for inflation, so checking the latest IRS guidelines before filing is essential. If income fluctuates, strategic tax planning—such as deferring income or increasing deductions—may help maximize eligibility.