Refundable Adoption Credit for Pre-2025 Carryforwards

Refundable adoption credit for pre-2025 carryforwards

The One Big Beautiful Bill Act (OB3 Act) makes up to $5,000 of the adoption credit refundable, beginning with tax year 2025.1 The Treasury Department has since clarified that, for tax year 2025 only, prior-year adoption credit carryforwards available for use in 2025 may be included in figuring the refundable portion.2 The refundable amount is limited to $5,000 per eligible child.

The 2025 Form 8839 and its instructions were not updated for this treatment. The IRS is instead making a systemic adjustment to eligible 2025 accounts. Refunds began in late September 2026, and the IRS has issued them to more than 50,000 taxpayers.3

Carryforwards That Qualify

Unused adoption credits carry forward for up to five years, oldest first. Carryforwards that originated in tax years 2020 through 2024 can be used in 2025. Carryforwards from before 2020 have expired.4

Who Receives the Adjustment

The IRS makes the adjustment when all of the following apply:5

  • The taxpayer filed a 2025 Form 1040, 1040-SR or 1040-NR
  • The taxpayer claimed, or was eligible to claim, the adoption credit on Form 8839, Qualified Adoption Expenses
  • The taxpayer had prior-year adoption credit carryforwards available for use in 2025
  • The 2025 return and account information show that the refundable credit should be increased

Taxpayers who filed before April 15, 2026, do not need to take any action. Returns filed under extension, and accounts with identity theft indicators, freezes or dependency conflicts, will be reviewed later in 2026.6

Form 8839 missing from the 2025 return. A taxpayer who did not claim the adoption credit on the 2025 return, but filed a Form 8839 for 2020 through 2024 showing a carryforward, may still receive the adjustment. If the IRS does not have enough information to determine the allowable credit, it may not be able to make the adjustment, and the taxpayer may need to file Form 1040-X, Amended U.S. Individual Income Tax Return, with Form 8839 to claim the credit.7 Tax software commonly drops Form 8839 from a return when the carryforward produces no benefit that year, such as when the taxpayer has no tax liability.

Carryforward left off Form 8839. If the 2025 return included Form 8839 but omitted the carryforward amount, the IRS may not have enough information to make the adjustment. An amended return is needed to correct the carryforward.8

Steps for Practitioners

  1. In the 2024 tax software, identify every client whose 2024 Form 8839 shows an adoption credit carryforward to 2025.
  2. Compare that list against the 2025 returns filed with Form 8839.
  3. For each client with a carryforward but no 2025 Form 8839, file Form 1040-X with Form 8839. The amended return reports the carryforward, even though the client could not use the nonrefundable credit on the original return. Once the IRS has the carryforward information, it can apply the refundable treatment.
  4. For each 2025 Form 8839 that omitted the carryforward, file Form 1040-X with a corrected Form 8839.
  5. Do not file an amended return solely to request the adjustment when the 2025 Form 8839 already shows the carryforward. The IRS makes those corrections on its own.9
  6. Do not alter the 2025 Form 8839 or override the software calculation on an original return. Complete the form as issued.10

Notices and Refunds

The IRS sends a notice within about 30 days of an adjustment. The notice states the amount and whether the change produced a refund or was applied to another tax or non-tax debt.11 Compare the notice with the 2025 return and keep it with the client’s records. “Where’s My Refund?” does not show this adjustment. The result appears in IRS Online Account or on a tax account transcript.12

Estimated tax penalty. The IRS does not recompute or abate an estimated tax penalty because of the adjustment. Request abatement by following the penalty notice, or file Form 843, Claim for Refund and Request for Abatement, if the notice is no longer available.13

Carryforward to 2026

The adjustment reduces the carryforward available for 2026. Recompute it using the Nonrefundable Adoption Credit Carryforward Worksheet for Line 18 in the 2025 Instructions for Form 8839. On Line 8 of that worksheet, enter the 2025 Form 8839, Line 18 amount plus the increase in the refundable credit. Take the increase from the notice or the transcript, not from the refund amount, which may include payments, offsets and interest.14

2025 only. A carryforward used on a 2026 return is not refundable.15


Sources

  1. OB3 §70402(a)(1); IRC §23(a)(4) ↩
  2. IRS FAQs, Questions and Answers about Adoption Tax Credit Carryforward, Topic A, Q1, Q3 and Q4 ↩
  3. IR-2026-123 (October 16, 2026); IRS FAQs, Questions and Answers about Adoption Tax Credit Carryforward, Topic D, Q1 ↩
  4. IRS FAQs, Questions and Answers about Adoption Tax Credit Carryforward, Topic A, Q5 ↩
  5. IRS FAQs, Questions and Answers about Adoption Tax Credit Carryforward, Topic B, Q1 ↩
  6. IRS FAQs, Questions and Answers about Adoption Tax Credit Carryforward, Topic A, Q2 ↩
  7. IRS FAQs, Questions and Answers about Adoption Tax Credit Carryforward, Topic B, Q3 ↩
  8. IRS FAQs, Questions and Answers about Adoption Tax Credit Carryforward, Topic B, Q4; Topic E, Q2 ↩
  9. IRS FAQs, Questions and Answers about Adoption Tax Credit Carryforward, Topic E, Q1 ↩
  10. IRS FAQs, Questions and Answers about Adoption Tax Credit Carryforward, Topic D, Q2 and Q4 ↩
  11. IR-2026-123 (October 16, 2026) ↩
  12. IRS FAQs, Questions and Answers about Adoption Tax Credit Carryforward, Topic G, Q1 and Q3 ↩
  13. IRS FAQs, Questions and Answers about Adoption Tax Credit Carryforward, Topic E, Q5 ↩
  14. IRS FAQs, Questions and Answers about Adoption Tax Credit Carryforward, Topic G, Q7 ↩
  15. IRS FAQs, Questions and Answers about Adoption Tax Credit Carryforward, Topic G, Q6 ↩

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