The Adoption Tax Credit is a credit against taxes for adoption expenses. It is available for all adoptions except those where the child is the child of the adopter’s spouse – basically, stepparent adoptions. The tax credit is a credit, not a deduction. It reduces tax dollar-for-dollar. It is not calculated as a deduction against income, but a reduction of tax.

The credit is nonrefundable, so the taxpayer cannot reduce tax below zero. However, unused credit may be carried over up to five years. In foreign adoptions, the credit is claimed in the year in which the adoption is finalized either in the U.S. or elsewhere. In domestic adoptions, the credit can be claimed as adoption expenses are incurred and do not need to be claimed in the same year the judgment is entered. The credit can even be claimed if an adoption does not occur.

Adoption expenses are broadly defined and can even include expenses incurred after the adoption judgment is final. They include legal fees, travel, lodging, meals, agency fees, training, medical expenses and other broadly defined expenses.

The credit amount changes from year to year. For 2019, the credit was $14,080 per child. Additionally, the credit phases out due to income, meaning it is reduced as income increases. The credit is based upon a Modified Adjusted Gross Income. In 2019, the MAGI cap for claiming the expense is $211,160.  

Finally, adoption reimbursements from employers are excluded from income. So, if you exceed the tax credit limit for the year, but the payment for the expenses are made by an employer, it may be still possible to fall within the credit limitations.