Growing your family through adoption is a beautiful journey, but it can also be a significant financial undertaking. To help ease this burden, the IRS has recently announced major improvements to the Adoption Tax Credit.

Thanks to the One Big Beautiful Bill (OBBB), the credit is now more valuable and accessible than ever. Whether you are pursuing a domestic, international, or foster care adoption, here is what you need to know about the new rules for the 2025 tax year and beyond.

1. The Maximum Credit Has Increased

For the 2025 tax year, the maximum Adoption Tax Credit has risen to $17,280 per eligible child.

This credit applies to “qualified adoption expenses,” which include:

• Reasonable and necessary adoption fees.

• Court costs and legal fees.

• Adoption-related travel expenses (including meals and lodging).

• Other expenses directly related to the legal adoption of an eligible child.

2. A Game-Changer: Partial Refundability

Historically, the Adoption Tax Credit was “non-refundable,” meaning it could only be used to reduce the taxes you owed. if you owed $0 in taxes, you couldn’t benefit from the credit that year.

The Update: Under the new guidance, the credit is now partially refundable.

• The Benefit: For tax years 2025 and later, taxpayers can receive a refund of up to $5,000 per qualifying child, even if they have no tax liability.

• Note: If your credit exceeds your tax liability and the refundable portion, you can still carry the remaining non-refundable balance forward to future tax years (up to five years).

3. Special Needs Adoptions: Full Credit Without Expenses

If you adopt a U.S. child whom the state or a tribal government has determined has “special needs,” you may be eligible to claim the full maximum credit ($17,280) even if you did not pay any out-of-pocket qualified adoption expenses.

New Authority for Tribal Governments: The IRS now recognizes Indian tribal governments as having the same authority as state governments to determine special needs status, ensuring more families can access this vital support.

4. When Can You Claim the Credit?

The timing of the credit depends on the type of adoption:

• Domestic Adoptions: You can often claim expenses in the year after they are paid, or in the year the adoption is finalized.

• International Adoptions: You generally must wait until the year the adoption is finalized to claim the credit.

• Early Expenses: Expenses like home studies often happen before a child is identified. These are still considered “qualified expenses” and can be tracked for your future claim.

5. Who is an “Eligible Child”?

To qualify for the credit:

• The child must be under age 18.

• If the individual is older than 18, they must be physically or mentally incapable of self-care.

• Exclusions: You cannot claim this credit for adopting a spouse’s child (stepparent adoption) or for expenses related to surrogate parenting agreements.

Summary: Take the Next Step

The 2025 improvements to the Adoption Tax Credit are designed to make the dream of a “forever home” a reality for more families. By making the credit partially refundable and increasing the total amount, the IRS is providing substantial relief to adoptive parents.

Action Tip: Keep every receipt! To claim the credit, you will need to complete IRS Form 8839 (Qualified Adoption Expenses) when you file your taxes. Because adoption tax law is complex, it is always recommended to consult with a tax professional who specializes in family credits.