§ 23. Adoption expenses
Adoption expenses
Allowance of credit
In general
In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter the amount of the qualified adoption expenses paid or incurred by the taxpayer.
Year credit allowed
The credit under paragraph (1) with respect to any expense shall be allowed—
in the case of any expense paid or incurred before the taxable year in which such adoption becomes final, for the taxable year following the taxable year during which such expense is paid or incurred, and
in the case of an expense paid or incurred during or after the taxable year in which such adoption becomes final, for the taxable year in which such expense is paid or incurred.
$10,000 credit for adoption of child with special needs regardless of expenses
In the case of an adoption of a child with special needs which becomes final during a taxable year, the taxpayer shall be treated as having paid during such year qualified adoption expenses with respect to such adoption in an amount equal to the excess (if any) of $10,000 over the aggregate qualified adoption expenses actually paid or incurred by the taxpayer with respect to such adoption during such taxable year and all prior taxable years.
Portion of credit refundable
So much of the credit allowed under paragraph (1) as does not exceed $5,000 shall be treated as a credit allowed under subpart C and not as a credit allowed under this subpart.
Limitations
Dollar limitation
The aggregate amount of qualified adoption expenses which may be taken into account under subsection (a) for all taxable years with respect to the adoption of a child by the taxpayer shall not exceed $10,000.
Income limitation
In general
The amount allowable as a credit under subsection (a) for any taxable year (determined without regard to subsection (c)) shall be reduced (but not below zero) by an amount which bears the same ratio to the amount so allowable (determined without regard to this paragraph but with regard to paragraph (1)) as—
the amount (if any) by which the taxpayer’s adjusted gross income exceeds $150,000, bears to
$40,000.
Determination of adjusted gross income
For purposes of subparagraph (A), adjusted gross income shall be determined without regard to sections 911, 931, and 933.
Denial of double benefit
In general
No credit shall be allowed under subsection (a) for any expense for which a deduction or credit is allowed under any other provision of this chapter.
Grants
No credit shall be allowed under subsection (a) for any expense to the extent that funds for such expense are received under any Federal, State, or local program.
Carryforwards of unused credit
In general
If the portion of the credit allowable under subsection (a) which is allowed under this subpart for any taxable year exceeds the limitation imposed by section 26(a) for such taxable year reduced by the sum of the credits allowable under this subpart (other than this section and section 25D), such excess shall be carried to the succeeding taxable year and added to the portion of the credit allowable under subsection (a) which is allowed under this subpart for such taxable year.
Limitation
No credit may be carried forward under this subsection to any taxable year following the fifth taxable year after the taxable year in which the credit arose. For purposes of the preceding sentence, credits shall be treated as used on a first-in first-out basis.
Definitions
For purposes of this section—
Qualified adoption expenses
The term “qualified adoption expenses” means reasonable and necessary adoption fees, court costs, attorney fees, and other expenses—
which are directly related to, and the principal purpose of which is for, the legal adoption of an eligible child by the taxpayer,
which are not incurred in violation of State or Federal law or in carrying out any surrogate parenting arrangement,
which are not expenses in connection with the adoption by an individual of a child who is the child of such individual’s spouse, and
which are not reimbursed under an employer program or otherwise.
Eligible child
The term “eligible child” means any individual who—
has not attained age 18, or
is physically or mentally incapable of caring for himself.
Child with special needs
The term “child with special needs” means any child if—
a State or Indian tribal government has determined that the child cannot or should not be returned to the home of his parents,
such State or Indian tribal government has determined that there exists with respect to the child a specific factor or condition (such as his ethnic background, age, or membership in a minority or sibling group, or the presence of factors such as medical conditions or physical, mental, or emotional handicaps) because of which it is reasonable to conclude that such child cannot be placed with adoptive parents without providing adoption assistance, and
such child is a citizen or resident of the United States (as defined in section 217(h)(3)).
Special rules for foreign adoptions
In the case of an adoption of a child who is not a citizen or resident of the United States (as defined in section 217(h)(3))—
subsection (a) shall not apply to any qualified adoption expense with respect to such adoption unless such adoption becomes final, and
any such expense which is paid or incurred before the taxable year in which such adoption becomes final shall be taken into account under this section as if such expense were paid or incurred during such year.
Filing requirements
Married couples must file joint returns
Rules similar to the rules of paragraphs (2), (3), and (4) of section 21(e) shall apply for purposes of this section.
Taxpayer must include TIN
In general
No credit shall be allowed under this section with respect to any eligible child unless the taxpayer includes (if known) the name, age, and TIN of such child on the return of tax for the taxable year.
Other methods
The Secretary may, in lieu of the information referred to in subparagraph (A), require other information meeting the purposes of subparagraph (A), including identification of an agent assisting with the adoption.
Basis adjustments
For purposes of this subtitle, if a credit is allowed under this section for any expenditure with respect to any property, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed.
Adjustments for inflation
In general
In the case of a taxable year beginning after December 31, 2002, each of the dollar amounts in paragraphs (3) and (4) of subsection (a) and paragraphs (1) and (2)(A)(i) of subsection (b) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2001” for “calendar year 2016” in subparagraph (A)(ii) thereof.
Rounding
If any amount as increased under paragraph (1) is not a multiple of $10, such amount shall be rounded to the nearest multiple of $10.
Special rule for refundable portion
In the case of the dollar amount in subsection (a)(4), paragraph (1) shall be applied—
by substituting “2025” for “2002” in the matter preceding subparagraph (A), and
by substituting “calendar year 2024” for “calendar year 2001” in subparagraph (B) thereof.
Regulations
The Secretary shall prescribe such regulations as may be appropriate to carry out this section and section 137, including regulations which treat unmarried individuals who pay or incur qualified adoption expenses with respect to the same child as 1 taxpayer for purposes of applying the dollar amounts in subsections (a)(3) and (b)(1) of this section and in section 137(b)(1).