Did you welcome an adopted child into your family in 2011? If so, you’re likely familiar with the hefty costs and time commitments that come along with the adoption process. However, there’s good news as you are entitled to the adoption tax credit. Initially anticipated to phase out in 2010, this benefit has been further extended under the Affordable Care Act.
Applying for the Adoption Credit
To access the adoption tax credit, you’ll need to submit your tax returns in paper format, making use of IRS form 8839 titled ‘Qualified Adoption Expenses’. This can’t be done electronically. Do note that couples earning over $185,520 (with due adjustments for 2011 inflation) could only qualify for a portion of the adoption tax credit, and those earning over $222,520 are not eligible.
Generally, tax returns that are well-prepared along with the requisite documentation for the adoption will be processed within three weeks. However, since the adoption credit is the highest credit obtainable, the IRS scrutinizes and occasionally contacts taxpayers to verify the information, which could potentially delay your return.
The Amount of the Credit
You could be eligible for a robust adoption tax credit of up to $13,170. This covers adoption fees, attorney charges, court costs and travel expenses related to the adoption. For those adopting a special needs child, you could qualify for the full credit despite minimal out-of-pocket expense. What’s more, this credit is refundable, meaning that even if you paid little or no tax the year you apply for it, you could still be entitled to the full credit amount. In previous years, if the credit reduced your tax obligation to zero, any remaining credit amount would be rolled over to the next tax return. This policy has now been modified so that you can receive a refund for the remaining amount once your tax obligation is settled.
Different Provisions for Domestic and International Adoptions
Your claim eligibility differs depending on whether the adoption is domestic or international. In the case of a failed domestic adoption attempt, you could still claim related expenses. However, with international adoptions that don’t get finalized, claiming the expenses is not possible.
For domestic adoptions, expenses incurred during the process can be claimed in the following year, even if the adoption isn’t finalized. For international adoptions, fees cannot be claimed until the year the adoption is officially completed. As an example, a colleague of ours started her family by adopting children through the San Antonio adoption agency as she was unable to conceive naturally.
Without the adoption tax credit, the adoption process, which typically costs over $20,000, might be prohibitive for many who wish to provide a nurturing home for a child in need. Because of the sizable nature of the tax credit, the IRS handles such claims with extra care. Despite this, don’t hesitate to apply if you qualify, but be sure to properly follow the procedure and attach all necessary documents to avoid holdups in your tax return.
