Understanding the Adoption Tax Credit by Joanie B. Stein, CPA

Posted on December 26, 2017 by Joanie Stein

With all of the political wrangling over tax reform, it appears that Republicans in the House and Senate have agreed to preserve the Child Adoption Tax Credit, which in 2017 can be as high as $13,570 per qualifying child.

The Federal Adoption Tax Credit has helped countless families afford the high cost of adoption, while providing permanent homes to millions of children. The tax credit can be used to offset qualifying adoption expenses, including adoption fees, court costs and attorney fees and amounts spent on adoption-related travel, including airfare, lodging and meals. In addition, families may use the credit to exclude from their taxable income any financial adoption assistance they may have received from their employers.

Because the credit it is non-refundable, it may, in some instances, reduce a family’s tax liabilities to zero. In fact, when the credit exceeds the amount of taxes owed, a family may carry unused credits forward to reduce their taxes for up to five subsequent years, or until the credit is fully used, whichever comes first.

However, if a family has a tax bill that is less than the credit of $13,750 per child, they will not be entitled to a refund of the remaining credit amount. In addition, families should be aware that the credit is subject to income limitations that may reduce or even eliminate the amount they may claim.  For example, in 2017, the amount of the credit starts to phase out when families have an adjusted gross income above $203,540, and it becomes completely unavailable to families with income that exceeds $243,540.

The credit applies to adoptions of individuals younger than age 18 or persons who are physically or mentally unable to care for themselves that are made through international and domestic agencies, private sources or the public foster care system. Legal adoptions of step-children, typically through second marriages, do not qualify.

When a family adopts children with special needs, they may be able to claim the tax credit even if they did not incur any qualifying adoption expenses. For tax purposes, a special needs child is defined as one who is a citizen or resident of the U.S. at the time of the adoption, who would probably not be adopted without assistance provided to the adopting family and for whom a state determines can or should not be returned to his or her birth parent’s home.

While there are rules detailing when families may apply the Adoption Tax Credit, claiming the credit or exclusion will require the filing of IRS Form 8839, Qualified Adoption Expenses, along with the taxpayer’s U.S. Individual Income Tax Return.


About the Author: Joanie B. Stein, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where she helps individuals and businesses implement sound tax-planning strategies.  She can be reached at the CPA firm’s Miami office at (305) 379-7000 or at