Qualified Adoption Expenses (QAE)

What QAE Are

Qualified adoption expenses (QAE) are reasonable and necessary costs paid to adopt an eligible child (under age 18) or a person who is physically or mentally incapable of self-care. The Internal Revenue Service (IRS) allows eligible taxpayers to use QAE to claim the adoption tax credit or exclusion, which reduces federal tax liability.

Key points

• QAE include adoption fees, court costs, attorney fees, travel (including meals and lodging while away from home), and other expenses directly related to the legal adoption.
• The credit is claimed on IRS Form 8839.
• The adoption credit is nonrefundable; unused credit may be carried forward up to five years.
• Maximum credit: $16,810 per child for 2024 and $17,280 per child for 2025.
• The credit phases out above specified modified adjusted gross income (MAGI) thresholds.

Who can claim the credit

You may be eligible if you paid QAE to adopt:
* A U.S. citizen or resident child (you may qualify even if the adoption isn’t finalized or was finalized in a different tax year), or
* A foreign child (subject to the IRS rules).

You cannot claim the credit for fees that were reimbursed by an employer or government program, or for the adoption of your spouse’s child.

What counts as QAE

Per Internal Revenue Code Section 23(d)(1), QAE generally include:
* Reasonable and necessary adoption fees.
* Court costs and attorney fees.
* Travel expenses (meals and lodging while away from home).
* Other expenses directly related to the legal adoption.

Costs incurred before an eligible child is identified can still qualify if they meet the “reasonable and necessary” test.

Exclusions and limitations

Common exclusions:
* Costs for adopting your spouse’s child.
* Fees reimbursed by an employer or government program.

Other important limits:
* The credit is nonrefundable—your tax liability must be at least as large as the credit to realize the full benefit in that year.
* Any unused portion can be carried forward up to five tax years.
* Dollar limits may apply when claiming the credit for the same adoption across multiple years, and rules govern timing of when the credit can be taken.

Income phase-out (MAGI)

For the credit to be fully allowed, MAGI must be at or below the lower threshold for each tax year. The credit phases out between the lower and upper thresholds and is eliminated above the upper threshold.

• 2024: full credit if MAGI ≤ $252,150; phases out and is eliminated when MAGI > $292,150.
• 2025: full credit if MAGI ≤ $259,190; phases out and is eliminated when MAGI > $299,190.

Special situations

• Special-needs adoptions: Generally eligible for the maximum credit in the year the adoption is finalized regardless of expenses, though the amount may be reduced by prior-year claims and is subject to MAGI limits.
• Adoptee older than 18: QAE apply only for individuals under 18 unless the adoptee is physically or mentally incapable of self-care.
• Same-sex couples: Domestic partners in states allowing same-sex parenting may claim QAE in the same manner as other adoptive parents.
• Foreign adoptions: Expenses paid to adopt a foreign child may be eligible; follow IRS rules for documentation and timing.

How to claim

• Report QAE on IRS Form 8839 (Qualified Adoption Expenses) and attach it to your federal tax return.
• Form 8839 requires identifying information for the child (name, year of birth, identifying number) and whether the child is special-needs or foreign-born.
• Keep detailed records and receipts for all adoption-related expenses.

Example

If your tax liability for the year is $10,000 and you have $14,000 in QAE, you can use up to $10,000 of the credit that year (because the credit is nonrefundable). The remaining $4,000 may be carried forward, subject to the five-year carryforward limit.

Takeaway

Qualified adoption expenses can produce a meaningful federal tax credit that helps offset the cost of adopting a child. Verify eligibility, track and keep receipts for all adoption-related expenses, and use Form 8839 to claim the credit. Be mindful of income phase-outs, nonrefundable status, and special rules for special-needs and foreign adoptions.