Federal Adoption Tax Credit

The Federal Adoption Tax Credit is a significant benefit designed to help offset the costs of adoption. For 2026, the maximum credit is $17,670 per eligible child, a dollar-for-dollar reduction of your tax liability.

• Partially Refundable: A major update for 2026 is that the credit is now partially refundable. This means you can receive up to $5,120 of the credit as a refund, even if you don’t owe any federal taxes. This is a huge step forward for families with lower tax liabilities.
• Nonrefundable Portion: The remaining credit can be used to lower any tax you owe.
• Recommendation: To fully understand and take advantage of this credit, we highly recommend consulting with a tax professional. They can help you determine the extent of the credit that applies to your specific financial situation.

What You Need to Know

The Federal Adoption Tax Credit is a powerful tool to help families with the financial costs of adoption. For 2025, the credit has been updated with some exciting changes.

Key Highlights:

• Maximum Credit: The credit can be worth up to $17,670 per eligible child. This is a dollar-for-dollar reduction of the federal taxes you owe.
• Income Phase-Out: The credit begins to be reduced if your modified adjusted gross income (MAGI) is over $265,080 and is completely phased out for incomes over $305,080.
• Special Needs Adoption: If you adopt a child with special needs, you may be eligible to claim the maximum credit of $17,670, regardless of your actual adoption expenses, as long as you meet the income requirements.
• Failed Adoption: In many cases, you can still claim the credit for qualified expenses from a failed or attempted adoption. We strongly recommend speaking with a tax professional to understand your specific situation.

Who is an Eligible Child?

The credit applies to:

• Any child who is age 17 or younger.
• A child of any age who is a U.S. citizen or resident alien and is physically or mentally unable to care for themselves.

This credit is a great way to help make adoption more affordable. It can be used per child, per adoption, which is a significant benefit for families adopting siblings or multiple children. For the most accurate and personalized advice, we always recommend consulting with a tax professional.

Calculating Your Qualified Adoption Expenses

To determine the amount you can claim for the Federal Adoption Tax Credit, you first need to calculate your total “Qualified Adoption Expenses.”

How to Calculate Your Expenses:

1. Add up all your adoption-related costs. These are expenses that are reasonable and necessary for the legal adoption of an eligible child.
2. Subtract any reimbursements. This includes any amounts paid or reimbursed by your employer, a government agency, or any other organization. You cannot claim expenses for which you were already compensated.

What Counts as a Qualified Adoption Expense?

The following are examples of expenses that are generally considered qualified:

• Agency adoption fees: Fees paid to the adoption agency for their services.
• Legal fees: Costs associated with attorneys and court fees.
• Birth mother living expenses: Expenses that are reasonable and necessary for the birth mother during her pregnancy and postpartum period, as allowed by state law (for Federal only).
• Social service costs: The cost of services like the home study and post-placement visits.
• Travel expenses: Includes the cost of travel, meals, and lodging while you are away from home for the adoption.

By carefully calculating your qualified expenses, you can ensure you are taking full advantage of the Federal Adoption Tax Credit to help make your adoption journey more affordable.

To claim the Federal Adoption Tax Credit, it’s essential to keep accurate and organized records. Having these documents readily available will help you file correctly and support your claim if the IRS has any questions.

Documents to Keep 📁

• Receipts: Keep all receipts for qualified adoption expenses. This includes fees from your adoption agency, legal fees, court costs, and any other expenses directly related to the adoption.
• Final Adoption Decree: This is the official court order that legally makes you the parent of your adopted child. It is the most critical document for proving the finalization of the adoption.
• Home Study Assessment: This report is a comprehensive evaluation of your family and home environment, conducted by a licensed adoption agency or social worker.
• Child Placement Agreements or Court Orders: These documents confirm that an authorized agency or court has placed the child in your home.

You can find more detailed information and guidance on the adoption tax credit by visiting the IRS website at www.IRS.gov.

Federal Adoption Tax Credit: Frequently Asked Questions

Understanding the ins and outs of the Federal Adoption Tax Credit can be confusing. Here are answers to some common questions to help you navigate the process.

Can the credit be carried forward?

Yes. If you don’t have enough tax liability to use the full credit in the first year, you can carry forward the remaining amount for up to five additional years. This gives you a total of six years to use the credit.

Is there a limit on how many credits I can claim?

No. You can claim the credit for each child you adopt (excluding step-children). You will need to use a separate Form 8839 for each adopted child.

Can I claim the tax credit when adopting a grandchild or relative?

Yes. The tax credit can be claimed when you adopt a grandchild or another relative. The only exception is adopting a stepchild.

Can I claim the credit for a failed adoption?

Yes. The federal adoption tax credit is not dependent on a successful adoption. You can claim qualified expenses for an attempted adoption of a U.S. child, even if it is not finalized. We highly recommend consulting with a tax professional to ensure you file correctly.

When can I claim the credit?

The timing can be complex, so it’s always best to consult with a tax professional. However, here are the general rules for a domestic adoption:

• If you pay expenses before the adoption is final: You can typically claim the credit the year after you paid the expenses.
• If the adoption is finalized in the same year you pay expenses: You can claim the credit in that same year.
• If you pay expenses after the adoption is finalized: You can claim the credit in the year you incur those expenses.

How do I apply?

To claim the credit, you need to complete IRS Form 8839, Qualified Adoption Expenses, and attach it to your Form 1040 when you file your federal tax return. Most tax preparation software will guide you through this process.

State-Level Financial Assistance for Adoption

A number of states offer financial benefits to residents who adopt. While the Ohio Adoption Tax Credit has been repealed, the State of Ohio now provides an excellent alternative to help with adoption costs: the Ohio Adoption Grant Program.

Ohio Adoption Grant Program (House Bill 45, 2022)

This program provides a one-time grant to families who finalize an adoption in Ohio. The grant amounts are as follows:

• $10,000 for any adoptive parent (excluding stepparents).
• $15,000 if you were a certified foster caregiver who adopted a child they were fostering.
• $20,000 for adopting a child with special needs.

The bill also created a separate $2,500 grant to help with college expenses for adopted children who attend a qualifying college or university in Ohio.

Please Note: These grants are not available for stepparent adoptions.

Important Disclaimer: We at Building Blocks Adoption Service are not tax professionals. The information provided here is for general guidance only. For specific advice and to determine your eligibility for any tax credits or grants, you must consult with a qualified tax professional or the Department of Children and Youth (DCY).