Federal Qualifying Education Practice Test – Complete Exam Prep 2026

To understand why the Adoption Credit is calculated at $0 for Miranda and Tony despite their qualified expenses being $17,000 and their Modified Adjusted Gross Income (MAGI) being $293,500, it's essential to consider the income limits associated with the Adoption Credit.

The federal adoption credit is a nonrefundable tax credit for taxpayers who incur expenses related to adopting a child. As of the tax year 2023, the adoption tax credit begins to phase out for households with a MAGI above a specified threshold. For single filers and married couples filing jointly, the credit gradually decreases as income increases, and there are set limits on the income level where the credit entirely phases out.

In this case, Miranda and Tony's MAGI of $293,500 exceeds the limit for eligibility for the adoption credit. As a result, they do not qualify for any credit against their taxable income, leading to an Adoption Credit of $0.

For taxpayers in similar circumstances, understanding these income thresholds is crucial for tax planning and determining eligibility for various tax credits. The phase-out mechanisms are designed to focus benefits on those with lower incomes, thereby excluding those with higher incomes from receiving the credit.