The adoption tax credit has helped adoptive families for years, but being fully nonrefundable limited its value for lower-income households. The One Big Beautiful Bill Act (OBBBA) changed that. Starting with tax years after December 31, 2024, up to $5,000 of the adoption credit is now refundable, meaning families can get cash back even when they owe less in tax than the credit is worth.
What Did OBBBA Change About the Adoption Credit?
Before OBBBA, if your adoption credit was $16,810 but your federal tax liability was only $8,000, you eliminated your tax bill but received nothing back for the remaining $8,810. You could carry the unused credit forward for up to five years, but families with consistently low income often never got the full benefit.
Under OBBBA, up to $5,000 of the credit is now refundable. If your credit exceeds your tax liability, you receive up to $5,000 of that excess as a cash refund. The $5,000 refundable cap is indexed for inflation starting in 2026.
How Much Is the 2026 Adoption Tax Credit?
The maximum credit for 2026 is $16,810 per eligible child, covering qualified adoption expenses up to that limit. Special needs adoptions receive the full $16,810 in the year the adoption is finalized, regardless of actual expenses incurred.
2026 Adoption Credit: Key Numbers
- Maximum credit per eligible child: $16,810 (2026, inflation-adjusted under IRC §23)
- Refundable portion (OBBBA new): Up to $5,000 cash back if credit exceeds tax liability
- Special needs adoption: Full $16,810 credit regardless of actual expenses paid
- Carryforward for unused nonrefundable portion: Up to 5 years
- Income phaseout: Credit phases out over a $40,000 MAGI range for higher earners
- Form to claim: Form 8839, Adoption Expenses
Who Qualifies for the Adoption Credit?
The credit applies to adoptions of an eligible child: a person under age 18, or any individual who is physically or mentally incapable of self-care regardless of age. Step-parent adoptions and adoptions of a spouse's child do not qualify.
What Counts as a Qualified Adoption Expense?
Qualified adoption expenses are reasonable and necessary costs paid to adopt an eligible child:
- Attorney fees, court costs, and filing fees
- Agency and placement fees
- Home study fees
- Travel and lodging costs directly related to the adoption
- Document preparation and translation fees
Expenses reimbursed by an employer adoption assistance program cannot also be claimed for the credit.
Does the Credit Phase Out for Higher Earners?
Yes. The credit phases out over a $40,000 modified AGI range under IRC §23(b). The IRS adjusts the phaseout threshold for inflation each year and publishes the updated amount in its annual revenue procedure. Filers above the upper threshold receive no credit. Married filing separately taxpayers generally cannot claim the adoption credit at all.
When and How to Claim the Credit
File Form 8839 (Adoption Expenses) with your federal return. The timing depends on adoption type:
- Domestic adoptions finalized: Claim in the year of finalization, using expenses from that year and prior years.
- Domestic adoptions that fall through: Claim qualifying expenses in the year they were paid, even without finalization.
- International adoptions: Claim expenses only after the adoption is finalized under the foreign country's law and U.S. immigration requirements.
Keep all documentation: agency agreements, court orders, receipts, and the final adoption decree. The IRS may request these to verify the credit.
Have questions about the adoption credit or other OBBBA changes? Contact TS CPA for a free consultation. We respond within the same day.