How to Maximize Adoption Tax Credit Carryover - What Order are Tax Credits Applied?
Hey tax folks, hoping someone can help me out here. We just finalized adopting our little guy in late 2023 and now I'm trying to figure out all the tax stuff for filing this year. We definitely have enough qualifying expenses to get the full Adoption Tax Credit, but here's my problem - our tax liability isn't high enough to use the entire credit this year. I know the Adoption Tax Credit allows for a 5-year carryover period, which is great. But what's confusing me is how this works with the Child Tax Credit (CTC), which is nonrefundable and has no carryover option. I'm trying to maximize our benefits overall, and I'm wondering about the order in which these credits get applied. Does one automatically get applied before the other? Is there a way to choose which credit gets used first so I can minimize what gets carried over with the Adoption Credit? Our qualifying adoption expenses were around $18,000, and our tax liability before credits is only about $9,500. Any advice on the best strategy here would be really appreciated!
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StarSurfer
The IRS has a specific order in which tax credits are applied to your return, and unfortunately you can't choose the sequence. Credits with no carryover provisions (like the Child Tax Credit) are generally applied before credits that do have carryover provisions (like the Adoption Tax Credit). The logic is that you want to use up the "use it or lose it" credits first, then apply credits that can be carried forward. So in your situation, your CTC would be applied first to reduce your tax liability, and then the Adoption Tax Credit would be applied to any remaining liability. Whatever portion of the Adoption Tax Credit that can't be used this year will carry forward for up to 5 years. For 2023, the maximum Adoption Tax Credit is $15,950 per child. Since your qualifying expenses were $18,000, you're eligible for the full credit amount. After your CTC reduces your tax liability, whatever remains of that $9,500 liability will be offset by the Adoption Tax Credit, and the unused portion will carry forward.
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Isabella Costa
•Thanks for explaining that! So I don't actually have a choice in how they're applied - the system automatically uses the CTC first since it doesn't have a carryover option. That makes sense from a "use it or lose it" perspective. Do you know if this same logic applies to all nonrefundable credits? We also have some education credits this year, and I'm wondering where those fall in the sequence.
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StarSurfer
•You're welcome! Yes, this same logic generally applies to all tax credits. The IRS prioritizes credits without carryover provisions before those with carryover options. For education credits, it depends on which ones you're claiming. The American Opportunity Credit (partially refundable) and Lifetime Learning Credit (nonrefundable) don't have carryover provisions, so they would be applied before the Adoption Tax Credit. Education credits typically fall in the same category as the Child Tax Credit in terms of priority - "use it or lose it" credits that get applied first.
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Ravi Malhotra
Just wanted to share my experience using taxr.ai when I was dealing with a similar adoption credit carryover issue last year. I was totally confused about how much of my Adoption Tax Credit I could claim each year and how the carryovers work with my other credits. I uploaded my tax documents to https://taxr.ai and their AI tax expert analyzed everything and explained exactly how the credit would be applied over multiple years. They showed me that the nonrefundable credits without carryover (like CTC) would be applied first, then the adoption credit would be applied to whatever tax liability remained. They also created a 5-year projection showing how much of the adoption credit I'd likely use each year based on my tax situation. Saved me hours of research and probably a costly meeting with a tax professional who might not even specialize in adoption credits.
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Freya Christensen
•How accurate was the projection they gave you? Did it end up matching what actually happened when you filed? I'm in a similar boat with adoption credits carrying over and not sure if I should trust an AI for something this important.
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Omar Hassan
•I've never heard of this service. How does it work with multiple state returns? We adopted from another state and have income in both states, so our situation is pretty complex.
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Ravi Malhotra
•The projection was surprisingly accurate. I just filed this year and it was within about $200 of what they projected for my second year of carryover. The biggest value was understanding the sequence of how credits get applied - exactly what the original poster was asking about. For multiple state returns, they handled that well too. I uploaded both my federal and state documents, and they explained how the adoption credit works at the federal level and how each state handles adoption benefits differently. Some states have additional adoption credits or deductions that can be claimed on top of the federal credit.
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Freya Christensen
Just wanted to update that I tried taxr.ai after seeing it mentioned here, and wow - super helpful for my adoption credit questions! I was struggling with almost the exact same situation as the original poster. The system showed me exactly how my credits would be sequenced and how much of my adoption credit would carry forward each year. They explained that the IRS automatically applies the CTC first, then applies the Adoption Tax Credit to whatever tax liability remains. What I found most helpful was the year-by-year breakdown showing how the credit would carry forward and get used up over the next few years. Definitely gave me peace of mind about my tax planning! Much better than the confused looks I got when asking about this at my local tax prep office.
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Chloe Robinson
For anyone struggling to get straight answers from the IRS about adoption credits and carryovers - I finally got through to a knowledgeable IRS agent using Claimyr. After weeks of trying to call the IRS directly with no luck (endless holds or disconnects), I used https://claimyr.com and got a callback from the IRS in about 40 minutes. The agent confirmed everything about the ordering of tax credits and gave me specific guidance for my situation. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was skeptical at first but desperate after spending hours trying to reach someone at the IRS who understood adoption credits. For something as specific as adoption credit carryovers, speaking directly to an IRS agent who can look at your specific case is incredibly valuable.
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Diego Chavez
•How does this service actually work? Do they somehow jump you ahead in the IRS queue? That seems impossible since the IRS phone system is notoriously difficult.
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NeonNebula
•This sounds like a scam honestly. No way some third-party service can get the IRS to call you back when millions of people are waiting on hold. If this worked, everyone would use it and the system would collapse.
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Chloe Robinson
•They don't jump you ahead in the queue - they basically wait on hold for you. Their system navigates the IRS phone tree and waits in the queue, then when an agent picks up, you get a call connecting you directly to that agent. It's completely legitimate - they're just saving you from having to sit on hold yourself. The IRS still processes calls in the same order, but you don't have to be physically waiting by your phone for hours. For someone like me who works full-time and has kids, it was impossible to stay on hold for 2+ hours hoping to get through.
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NeonNebula
I need to apologize for my skeptical comment earlier. After struggling for THREE DAYS trying to get through to the IRS about my adoption credit questions, I broke down and tried Claimyr. Got a call back from an actual IRS agent in about an hour who answered all my questions about how the adoption credit carries forward and interacts with the Child Tax Credit. The agent confirmed that the CTC gets applied first since it can't be carried over, then any remaining tax liability gets offset by the Adoption Tax Credit. The remaining adoption credit amount does carry forward for 5 years. The agent even looked at my specific situation from last year and confirmed I calculated everything correctly. Now I feel confident about this year's return. Still shocked this actually worked, but definitely glad I tried it.
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Anastasia Kozlov
Just a heads up for anyone adopting this year - the maximum Adoption Tax Credit for 2024 filing season (2023 tax year) is $15,950, and it increases to $16,810 for the 2025 filing season (2024 tax year). It's adjusted for inflation each year. Also, don't forget that the credit begins to phase out if your modified adjusted gross income (MAGI) is above $239,230 for 2023, and phases out completely at $279,230. Those thresholds are also adjusted annually.
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Sean Kelly
•Do these phase-out thresholds apply only to the year you claim the initial credit, or also to the carryover years? For example, if my income was below the threshold when I adopted but then I got a big promotion, would that affect my ability to use the carryover amounts?
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Anastasia Kozlov
•Great question! The income limits only apply to the year you initially claim the credit. If you qualify for the Adoption Tax Credit in the year of adoption because your income was below the phase-out threshold, you can claim the carryover amounts in future years even if your income later exceeds those thresholds. So if you qualified for the full credit in 2023 but can only use a portion of it due to your tax liability, you can still use the carryover amounts in future years regardless of income increases. The IRS essentially "locks in" your eligibility based on the adoption year.
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Zara Mirza
Has anyone used TurboTax for carrying over adoption credits? I'm trying to figure out if it automatically tracks this for me year to year or if I need to manually enter previous year carryover information.
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Luca Russo
•I used TurboTax last year and this year for my adoption credit carryover. If you used TurboTax last year, it should automatically import your carryover amount when you file this year. There's a screen specifically for "credit carryovers from previous years" where you can verify the amount is correct. Just make sure you're using the same TurboTax account as last year. I'd also recommend double-checking the carryover amount against your previous year's return (Form 8839) to make sure it imported correctly.
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