Here’s what you need to know about the adoption tax credit
Taxes — they’re on everybody’s mind right about now. The looming deadline. The many questions and forms to fill out. For you, the adoptive parent, you’re probably wondering about the adoption tax credit. What is the adoption tax credit? Do I qualify for it? What do I do next? We hope this blog helps to answer some of your questions and ease some of the worries that come when tax time draws near.
*We strongly recommend contacting a licensed tax professional for additional information about the adoption tax credit and whether or not you qualify.
First, a little history….
On Friday, December 17th, President Obama signed the 2010 Tax Relief Act, a package of income tax, estate tax and unemployment provisions – including one huge benefit for adoptive families. This act extends the adoption tax credit through 2012!
Although the credit will vary for adoptive families, the ultimate outcome is the same. It eases the financial burden of adopting internationally – enabling more orphaned, abandoned and vulnerable children to have permanent, loving families.
Answers to questions you may be asking:
What is the Adoption Tax Credit?
The Adoption Tax Credit (ATC) helps defray adoption expenses for families adopting eligible children. The ATC helps make adoption possible for families who may otherwise be unable to afford to adopt.
Who qualifies for the Adoption Tax Credit?
Families may become eligible for the Adoption Tax Credit in the tax year that they finalize an adoption of an eligible child. There are limitations with regard to adjusted gross income (AGI) that determine if the credit can be taken in full, in part, or not at all. To determine if you qualify, visit http://www.irs.gov/pub/irs-pdf/i8839.pdf or contact your tax accountant.
Do all adoptions qualify for the Adoption Tax Credit?
Special needs and non-special needs domestic adoptions, and finalized international adoptions qualify. For more information, visit http://www.irs.gov/taxtopics/tc607.html.
What is the maximum amount of the Adoption Tax Credit?
The maximum amount will vary from year to year. For adoptions finalized in 2011, the maximum adoption credit is $13,360 and the amount is refundable.
For adoptions finalized in 2012, the maximum adoption credit will be approximately $12,650 and the amount will be non-refundable.
What is the difference between a refundable credit and a non-refundable credit?
A non-refundable credit can reduce the amount of tax you owe (your tax liability) to zero but not below. A refundable credit can reduce your tax liability to zero and IRS pays back (refunds) any remaining credit to you in the same year. For example, if your tax liability is $10,000 and your credit is $12,000, with a refundable adoption credit, you would reduce your tax liability to zero and also receive a refund of the $2,000. With a non-refundable adoption credit you would reduce your tax liability to zero and carry the remaining $2,000 credit forward. IRS Publication 8839 provides a worksheet for calculating the credit carry forward.
What are ‘qualified adoption expenses?’
According to the IRS: “Qualifying adoption expenses are reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including meals & lodging) and other expenses related to, and whose principal purpose is for, the legal adoption of an eligible child.”
Where can I get more information?
For more information on the Adoption Tax Credit, it is best to consult with a reliable licensed tax preparer. You should also consult the IRS website at http://www.irs.gov and search “Adoption Tax Credit.”
Adoption Tax Credit Awareness Day is February 13th! Spread the word! AdoptionTaxCredit_Awareness Day Feb13th
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We are adopting this year from China, already been matched (in December of 2011). We had many questions about the Tax Credit and I kept getting conflicting answers. So I called the IRS this week and talked with them about the Tax Credit and its extension into 2012 and the lady said “no decision has been made at this time, and probably would not be resolved until the Fall of 2012. Well, not sure if she knew what she was talking about or not, just another confusing signal. Also, have heard it will be “non-refundable” for 2012 adoptions if carried over. 2010-2011 was “refundable”.