2025 Tax Law Enhances Adoption Tax Credit by Joanie B. Stein, CPA
Posted on April 02, 2026
by
Joanie Stein
Adoption provides prospective parents with the opportunity to experience the joys of raising children and providing them with loving and permanent homes. While the process can be costly, the One Big Beautiful Bill Act (OBBBA), enacted in 2025, expands existing tax credits, making it easier for families to offset some of those expenses and reduce their federal tax liabilities.
Families who adopt a child in 2026 may claim a credit of up to $17,650 per child in qualifying adoption expenses. The credit is available for each child a family adopts, without any limit. For example, adopting two children in 2026 may qualify for a $35,300 credit ($17,650 X 2) that can provide a dollar-for-dollar reduction in the amount of federal tax liability a family owes for the year.
However, the credit is subject to income limitations, which may reduce the amount of the credit or eliminate its availability entirely. More specifically, in 2026, families with modified adjusted gross income (MAGI) of up to $265,080 can qualify for the full $17,650 tax credit for each child they adopt. The credit begins to phase out as income increases above this threshold and becomes completely unavailable when income exceeds $305,080.
The OBBBA expands the adoption tax credit and increases its value to many families by making it partially refundable up to $5,120 in 2026 (indexed annually for inflation). This means it may reduce a family’s tax liability below zero, in which case the IRS will issue a refund. Taxpayers may carry forward the non-refundable portion of the credit for up to five years, but it may not result in a refund. Any credit remaining after five years is forfeited.
Like other provisions of the tax code, the federal adoption tax credit can be quite complex. Here are six points to keep in mind.
- To qualify for the tax credit, an adoption must involve eligible U.S. or foreign-born children under the age of 18 or any individual who is physically or mentally unable to care for himself or herself.
- Adoptions involving children with special needs are eligible for the maximum amount of credit even when the taxpayer does not pay any qualifying adoption expenses. However, for tax purposes, the IRS considers a special needs child to be 1) one who is a U.S. citizen at the start of the adoption process and 2) for whom a state or Indian tribal government determines cannot or should not be returned to their parents’ home and is not likely to be adopted without assistance to the adoptive family.
- The timing of the credit depends on whether the eligible child is a citizen or resident of the U.S. at the time the adoption process begins. Taxpayers may even claim a credit for adoptions of U.S. citizens or residents that are never finalized. However, adoptions involving foreign children are only available when they become final.
- Qualifying expenses must be reasonable, necessary and directly related to the legal adoption of an eligible child. Examples include adoption fees, court costs, legal fees and travel expenses, such as food and hotel costs when traveling away from home for the adoption. The law generally excludes from covered expenses costs taxpayers incur for the adoption of a spouse’s child and surrogate parenting agreements.
- Families may claim up to the maximum credit to offset their out-of-pocket adoption expenses, or they may exclude from income qualified adoption expenses paid or reimbursed by an employee up to the same limit.
- To claim the federal adoption tax credit, taxpayers must complete Form 8839, Qualified Adoption Expenses and attach it to their federal tax return on Form 1040, 1040-SR (for seniors) or 1040-NR (for nonresident aliens).
About the Author: Joanie B. Stein, CPA, is a director of Tax Compliance and Wealth Services with Baker Tilly x Berkowitz Pollack Brant, where she works with individuals and closely held businesses to implement sound strategies intended to preserve wealth and improve tax efficiency. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or info@bpbcpa.com.
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