Written by Seth Broussard, Accountant
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025 by President Trump, is a bill that covers a wide array of topics from individual tax rates to government spending provisions. One of the main implications of this bill is the many effects it has on individual taxpayers through increased deductions and credits. One of these credits is the Adoption Credit.
Section 70402 of the bill provides guidance about the Adoption Credit. If you adopt an eligible child, you may be able to claim the Adoption Credit or income exclusion for employer-provided adoption benefits. If the adoption expenses are paid by an employer, then the individual can exclude from their income any of these expenses paid. In previous years, this credit was limited to qualified expenses of $16,180. The OBBBA provides two changes to this credit. The first change is increasing the limit to $17,280 for the 2025 tax year. The second change is a refundable portion of this credit. In previous years, this credit was not refundable, but as of 2025, $5,000 of this credit can be refunded to certain qualified taxpayers.
The Adoption Credit is the government’s push to encourage adoption and to relieve some financial burden from the adoption process. However, the credit is reduced once modified adjusted gross income exceeds $259,191. The portion of the Adoption Credit is refundable up to $5,000, but the non-refundable portion of the credit can be carried forward for a maximum of five years. The unused non-refundable portion is forfeited after five years and cannot result in a refund.
Qualified adoption expenses used to calculate the allowable credit are reasonable and necessary expenses paid to adopt. Some examples of qualified adoption expenses are adoption fees, attorney fees, court costs, travel expenses while away from home, and expenses paid before identifying an eligible child. Some examples of disqualified adoption expenses that do not qualify for the credit are expenses to adopt your spouse’s child and a surrogate parent agreement.
It is very important for everyone to stay informed about tax law. Tax laws are always changing, and new deductions, credits, or laws may apply to your situation. Having a basic knowledge of changes to tax law allows us at Darnall, Sikes & Frederick to better assist you with all your tax compliance needs.