Section 23 · Adoption expenses

(a) Allowance of credit (1) 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. (2) Year credit allowed The credit under paragraph (1) with respect to any expense shall be allowed— (A) 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 (B) 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. (3) $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. (4) 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.

(c) Carryforwards of unused credit (1) In general If the credit allowable under subsection (a) 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. (2) 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.

(d) Definitions For purposes of this section— (1) Qualified adoption expenses The term “qualified adoption expenses” means reasonable and necessary adoption fees, court costs, attorney fees, and other expenses— (A) which are directly related to, and the principal purpose of which is for, the legal adoption of an eligible child by the taxpayer, (B) which are not incurred in violation of State or Federal law or in carrying out any surrogate parenting arrangement, (C) 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 (D) which are not reimbursed under an employer program or otherwise. (2) Eligible child The term “eligible child” means any individual who— (A) has not attained age 18, or (B) is physically or mentally incapable of caring for himself. (3) Child with special needs The term “child with special needs” means any child if— (A) a State or Indian tribal government has determined that the child cannot or should not be returned to the home of his parents, (B) 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 (C) such child is a citizen or resident of the United States (as defined in section 217(h)(3)).

(h) Adjustments for inflation (1) 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— (A) such dollar amount, multiplied by (B) 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. (2) 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. (3) Special rule for refundable portion In the case of the dollar amount in subsection (a)(4), paragraph (1) shall be applied— (A) by substituting “2025” for “2002” in the matter preceding subparagraph (A), and (B) by substituting “calendar year 2024” for “calendar year 2001” in subparagraph (B) thereof.