In 2010 and
2011, you may be
able to take a
refundable tax
credit for
qualifying
expenses (up to
$13,170) paid to
adopt an
eligible child
(including a
child with
special needs).
This means that
you could
qualify for a
tax refund even
if you did not
have federal
income tax
withheld. For
tax years prior
to 2010, the
adoption credit
is not
refundable.
Under new
Adoption Credit
Rules for the
2010 tax year,
you must attach
one or more
adoption-related
documents
(identified in
the form
instructions)
with the
completed
Form 8839
(PDF),
Qualified
Adoption
Expenses,
and attach the
form to your
Form 1040 or
Form 1040A
return, to claim
the adoption
credit or income
exclusion. The
required
documents are
different if the
adoption is
foreign, or
domestic, final
or not final and
if the adoption
is for a
special-needs
child.
Here are seven things the IRS wants
you to know about the expanded
adoption credit.
1. Beginning in tax year 2010
the credit is refundable, meaning
that you can get it even if you owe
no tax.
2. For tax year 2010 you must
file a paper tax return and Form
8839, Qualified Adoption Expenses,
to get the credit and you must
attach documents supporting the
adoption.
3. Documents may include a
final adoption decree, placement
agreement from an authorized agency,
court documents and the state’s
determination for special needs
children.
4. Qualified adoption expenses
are reasonable and necessary
expenses directly related to the
legal adoption of the child. These
expenses may include adoption fees,
court costs, attorney fees and
travel expenses.
5. An eligible child must be
under 18 years old, or physically or
mentally incapable of caring for
himself or herself.
6. If your modified adjusted
gross income is more than $182,520,
your credit is reduced. If your
modified AGI is $222,520 or more,
you cannot take the credit.
7. Taxpayers claiming the
credit will still be able to use IRS
Free File to prepare their returns,
but the returns must be printed and
mailed to the IRS, along with all
required documentation.
You can read further about this
credit at this link:
http://www.irs.gov/taxtopics/tc607.html
2013 UPDATE
Ten Facts about
Adoption-Related
Tax Savings
In
April 2013, the
IRS issued the
following
concerning the
adoption credit:
Adoption can
create new
families or
expand existing
ones. The
expenses of
adopting a child
may also lower
your federal
tax. If you
recently adopted
or attempted to
adopt a child,
you may be
eligible for a
tax credit. You
may also be
eligible to
exclude some of
your income from
tax. Here are
ten things the
IRS wants you to
know about
adoption tax
benefits.
1. The maximum
adoption tax
credit and
exclusion for
2012 is $12,650
per eligible
child.
2. To be
eligible, a
child must
generally be
under 18 years
old. There is an
exception to
this rule for
children who are
physically or
mentally unable
to care for
themselves.
3. For 2012, the
tax credit is
nonrefundable.
This means that,
while the credit
may reduce your
tax to zero, you
cannot receive
any additional
amount in the
form of a
refund.
4. If your
credit exceeds
your tax, you
may be able to
carryforward the
unused credit.
This means that
if you have an
unused credit
amount in 2012,
you can use it
to reduce your
taxes for 2013.
You can
carryover an
unused credit
for up to five
years or until
you fully use
the credit,
whichever comes
first.
5. Use Form
8839, Qualified
Adoption
Expenses, to
claim the
adoption credit
and exclusion.
Although you
cannot file your
tax return with
Form 8839
electronically,
the IRS
encourages you
to use e-file
software to
prepare your
return. E-file
makes tax
preparation
easier and
accurate. You
can then print
and mail your
paper federal
tax return to
the IRS.
6. Adoption
expenses must
directly relate
to the legal
adoption of the
child and they
must be
reasonable and
necessary.
Expenses that
qualify include
adoption fees,
court costs,
attorney fees
and travel
costs.
7. If you
adopted an
eligible U.S.
child with
special needs
and the adoption
is final, a
special rule
applies. You may
be able to take
the tax credit
even if you did
not pay any
qualified
adoption
expenses. See
the instructions
for Form 8839
for more
information
about this rule.
8. If your
employer has a
written
qualified
adoption
assistance
program, you may
be eligible to
exclude some of
your income from
tax.
9. Depending on
the adoption’s
cost, you may be
able to claim
both the tax
credit and the
exclusion.
However, you
cannot claim
both a credit
and exclusion
for the same
expenses. This
rule prevents
you from
claiming both
tax benefits for
the same
expense.
10. The credit
and exclusion
are subject to
income
limitations. The
limits may
reduce or
eliminate the
amount you can
claim depending
on your income.
For more
information,
visit the
IRS.gov website
to see the
Adoption
Benefits FAQ
page. Also,
check out Form
8839 and its
instructions.
Both are
available at
IRS.gov or you
can order the
form by calling
800-TAX-FORM
(800-829-3676).
Additional IRS
Resources:
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