How we feel about an outcome often depends on how close an alternative outcome was to occurring. In four experiments, we investigated whether predominantly White, middle-class, Canadian children (N = 425, Experiments 1-3) and American adults (N = 227, Experiment 4) consider close counterfactual alternatives when inferring other people's emotions. In Experiment 1, 6-year-olds (but not 4- and 5-year-olds) inferred that an agent would feel sadder about winning a mediocre prize if she later found out that a more attractive one could have easily been won. However, children of all ages failed to judge whether the better outcome could have easily happened. In Experiment 2, when 5- and 6-year-olds knew the locations of the prizes beforehand, they inferred that an agent would be equally happy about winning a mediocre prize, regardless if she almost won a better prize or not. Again, they did not recognize when the better outcome was a close counterfactual possibility. In Experiment 3, we included extra cues to the closeness of the alternative and both 5- and 6-year-olds inferred that she would feel sadder about winning a mediocre prize, and 6-year-olds acknowledged that the attractive prize was a close counterfactual alternative. In Experiment 4, adults considered close counterfactuals when inferring emotions. Our findings suggest that close counterfactuals influence children's emotion inferences before they become able to acknowledge their closeness.