Adoption is an option that more and more individuals and couples are considering to build their family. Qualified adoption expenses (QAE) are expenses incurred when people adopt a child or a person who requires special care. Generally, these costs are eligible for tax credits.

Qualified expenses are defined by the IRS as being reasonable and necessary costs related to adoption, including legal costs such as court filing fees, and all types of adoption attorney fees. Other related costs can also be included, such as adoption agency and placement fees, travel, home studies, background checks and medical exams and other related expenses, including but not limited to: counseling and therapy, translation services and any other required expenditures.

The credit for qualified adoption expenses for 2021 and 2022 is limited to a maximum of $14,890 per child, but for 2023 the total maximum allowable credit is rising to $15,950 per child. This tax credit can usually be claimed in the year in which the expenses were paid and will cover all related costs even if the adoption process is not completed and is then allowed to be carried forward for up to 5 years if unused.

Qualified adoption expenses credits are typically refundable for taxpayers with income below the maximum amount, so those that owe taxes can receive the full credit amount. However, those with incomes above the credit's limit may be able to claim a non-refundable credit, which is applied toward their tax liability and can be used to reduce taxes owed up to the amount of the credit.

Qualified adoption expenses don’t just provide potential tax savings, they can also provide much-needed assistance to families that are considering the adoption option. By helping offset the financial concerns of the adoption process, families are enabled to find the right fit for their family.

Adoption is an investment to make a difference in a potential son or daughter’s life, and in the case of a disabled person, to offer them the proper care. Qualified adoption expenses may provide relief from some of the financial costs of that investment.

1https://www.irs.gov/taxtopics/tc607#h18 2https://www.irs.gov/newsroom/tax-benefits-for-adoption-2021-2023