Adoption Tax Credit Question for 2025 Filing

Thank you so much for this clear explanation! When you say it's non-refundable but can be carried forward, does that mean if our tax liability is only $5,000 for 2025, we could use $5,000 of the credit this year and then carry the remaining $11,000 to future years? And would we need to wait until the adoption is finalized to claim any of it?

Yes, exactly! If your tax liability is $5,000, you'd use $5,000 of the credit to reduce your liability to zero, and then you could carry forward the remaining $11,000 for up to five subsequent tax years. For domestic adoptions, you can claim expenses in the year they're paid, even before the adoption is finalized. So for expenses paid in 2025, you can claim them on your 2025 return. However, if the adoption isn't finalized by the end of 2025, you'd claim them as "in process." Once the adoption is finalized, you'd update that status on future returns. For foreign adoptions, you can only claim the expenses in the year the adoption is finalized.

Does it help with determining eligibility if the child has special needs? I've heard there are different rules but I'm not clear on how it works.

I'm curious about international adoptions. Did taxr.ai help with that or is it mainly for domestic adoptions? I've heard international adoptions have different timing rules for when you can claim the expenses.

Yes, it absolutely helps with special needs determinations! The system identifies when a child qualifies as having "special needs" according to the IRS definition (which is different from the common use of the term). In those cases, you might qualify for the full credit amount even if your actual expenses were lower. For international adoptions, it definitely handles those too. You're right that the timing rules are different - with international adoptions, you can only claim expenses in the year the adoption is finalized, and taxr.ai helps organize everything according to those rules. It flags which expenses fall under which tax year based on the finalization date you provide.

How does it actually work though? I don't understand how they can get you through faster than just calling the IRS directly.

This sounds too good to be true. The IRS wait times are infamous. I've literally spent hours on hold only to be disconnected. I'm skeptical that any service could actually fix this problem.

It works by using automated technology to navigate the IRS phone tree and wait on hold for you. Basically, their system calls the IRS and waits in the queue. When an agent finally picks up, the system calls your phone and connects you directly to the IRS agent. You don't have to wait on hold at all. I was extremely skeptical too! I'd been disconnected after waiting 90+ minutes multiple times. The difference is their system is designed to stay connected no matter how long the wait. When I used it, their system waited for about 2 hours (which I didn't have to sit through), then called me once an agent was on the line. It felt like magic after the frustration I'd been dealing with.

I hadn't even thought about state benefits! Do you know if there's a good resource to check what might be available in different states? We're in Arizona if that helps.

The National Council For Adoption has a good state-by-state breakdown on their website, but it might not be completely up to date. Your best bet is to check directly with your state's tax department. Arizona does offer some benefits! They have an adoption expense deduction (not a credit) that lets you deduct unreimbursed adoption expenses from your state taxable income. It's not as valuable as a credit would be, but it's still something. The form you'll need is Arizona Schedule A, line 14.

Would a credit card statement work as proof for these expenses or do you need the actual itemized receipts?

You really need the actual itemized receipts, not just credit card statements. Credit card statements show that you paid something, but they don't prove what the expense was for or that it was adoption-related. The IRS wants to see detailed receipts that clearly show the date, amount, vendor, and description of services. For example, a hotel receipt should show the dates you stayed, not just a charge for "$150 to Marriott." Same with legal fees - you need invoices that specify "adoption legal services" rather than just a payment to a law firm. I learned this the hard way during our audit. The IRS agent told me that credit card statements are supporting documentation at best, but never sufficient on their own for qualifying expenses.