Understanding the Adoption Credit: Adoption Tax Credit 2024

Key takeaways

• The adoption tax credit is a non-refundable tax benefit designed to offset the costs of adopting a child.
• For 2024, the maximum adoption credit is $16,810 per child.
• Qualified expenses for the adoption tax credit include adoption fees, court fees, and other expenses related to the adoption process and necessary for the legal adoption of the child.
• To calculate your adoption tax credit, first add up your eligible expenses. Then, check if your modified adjusted gross income (MAGI) falls within the phase-out range.
• To claim the adoption credit, you’ll need to complete IRS Form 8839, Qualified Adoption Expenses.
• If they meet the qualifying criteria, you can claim your adopted child as a dependent on your taxes.

What is the adoption credit?

The adoption tax credit is a benefit designed to offset some of the costs of adoption. This credit allows eligible parents to reduce their tax by a certain amount to help cover the expenses directly related to adopting a child. These include as adoption fees, court costs, attorney fees, and travel expenses necessary for the adoption process.

It is a non-refundable tax credit, which means that the adoption tax credit can reduce your tax to zero, but you won't receive any leftover amount as a refund. However, if your credit amount is more than your tax, you can carry forward the unused credit for up to five future tax years.

How much is the adoption credit in 2024?

For 2024, the maximum adoption credit is $16,810 per child. This amount can help cover a wide range of adoption-related expenses. However, it’s important to note that your actual credit amount will depend on your modified adjusted gross income (MAGI) and expenses.

The adoption credit begins to phase out if your MAGI is above a certain threshold. For 2024, the phase-out starts at an income of $252,150 and completely phases out at $292,150. This means that if your income falls within this range, the amount of credit you can claim will be reduced. If your income exceeds $292,150, you won’t be eligible.

Eligibility criteria for the adoption credit

To qualify for the adoption credit, you need to meet several eligibility criteria.

Here are the main requirements

• The credit is available for domestic adoptions (both special needs and non-special needs) and international adoptions. However, different rules may apply, depending on the type of adoption.
• Only expenses directly related to the legal adoption of a child are eligible for the credit. These include adoption fees, court costs, attorney fees, and travel expenses associated with the adoption process.
• As mentioned earlier, the credit begins to phase out at a certain income level. For 2024, if your MAGI is above $252,150, the amount of credit you can claim will start to decrease and completely phase out at $292,150.
• Generally, you must file as single, head of household, qualifying widow(er), or married filing jointly to claim the credit. Married couples filing separately usually cannot claim the credit unless they meet additional criteria.

What are qualified adoption expenses?

Qualified adoption expenses must be directly related to the adoption process and necessary for the legal adoption of your child.

Here are the expenses that typically qualify:

• Payments to an adoption agency or other facilitator for the adoption services they provide.
• Fees charged by the court to process the adoption, like filing fees.
• Attorney fees and other legal costs to ensure that the adoption complies with state and federal laws.
• Necessary travel expenses during the adoption process, such as transportation, lodging, and meals. This can include trips to meet the child or to bring the child home.
• Other expenses directly related to the adoption process. These expenses must be reasonable and necessary, such as costs for adoption-specific training or background checks.

Make sure to keep detailed records and hold onto receipts for all these expenses. You will need to provide documentation to claim the adoption tax credit.

How to calculate the adoption credit

Calculating your adoption tax credit is easy. Just follow a few steps to ensure you claim the correct amount.

First add up all your qualified adoption expenses, including fees, court costs, attorney fees, travel expenses, and any other eligible costs.

Next, check if your MAGI falls within the phase-out range. Your MAGI is your AGI adjusted for foreign-source income, if any. As a reminder, for 2024, the credit phase-out begins at $252,150 and ends at $292,150. If your income is above $292,150, you will not be eligible for the credit.

Keep in mind that the maximum credit for 2024 is $16,810 per child. Compare this amount with your total qualified expenses and your tax liability. If your expenses exceed the maximum credit, you can only claim up to $16,810 per child. If your expenses are less, you can claim the actual amount spent.

Use the credit to reduce your tax. If your credit exceeds your tax, you can carry the unused portion forward over the next five tax years.

Here’s an example

Let's say you have qualified adoption expenses totaling $20,000, and your MAGI is $272,150 for 2024. Your expenses exceed the maximum credit, which means that you would initially be eligible to claim the full $16,810. However, since your income falls within the phase-out range, your credit will be reduced proportionally.

At a MAGI of $272,150, which is halfway through the phase-out range of $252,150 to $292,150, you’d lose 50% of the maximum adoption tax credit of $16,810 per child. That means your reduced credit would be $8,405.

How to claim IRS credit for adoption: IRS Form 8839

To claim the adoption credit, you’ll need to complete IRS Form 8839, Qualified Adoption Expenses. You can download Form 8839 on the IRS website. It’s essential to use the latest version to ensure you have the most current information.

Here’s how to navigate Form 8839

• Part I: Provide details about the adopted child, including their name, date of birth, and the year the adoption was finalized.
• Part II: List your qualified adoption expenses and calculate the total.
• Part III: Enter the maximum allowable credit and any carryforward amounts from previous years. Apply the income limits and phase-out amounts as necessary.

Once you’ve completed Form 8839, attach it to your federal tax return. Remember, keep all your receipts and records of expenses in case the IRS requests further documentation.

Can I claim my adopted child on my taxes?

Yes, you can claim your adopted child as a dependent on your taxes, if they meet the qualifying criteria.

Here are the requirements:

• The child must be legally adopted, which includes being placed with you for adoption by an authorized agency.
• The child must be under the age of 18 at the end of the tax year. If the child turned 18 during the year, the child is eligible for the part of the year they were under 18. There is no age limit if the child is permanently and totally disabled.
• The child must have lived with you for more than half of the tax year.
• You must provide more than half of the child’s financial support during the year.
• The child must be a U.S. citizen, U.S. national, or a resident alien.

Have questions or concerns about the adoption tax credit? Jackson Hewitt Tax Pros are here to help. We’ll get you the answers you need, help you maximize your tax strategy, and more. Plus, we’re open all year. Book your appointment today.

About the Author

Mark Steber is Senior Vice President and Chief Tax Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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