2009 Adoption Tax Credit
In October, the adoption tax credit was reviewed and the following changes were made:
“.03 Adoption Credit. For taxable years beginning in 2009, under § 23(a)(3) the credit
allowed for an adoption of a child with special needs is $12,150. For taxable years
beginning in 2009, under § 23(b)(1) the maximum credit allowed for other adoptions is
the amount of qualified adoption expenses up to $12,150. The available adoption credit
begins to phase out under § 23(b)(2)(A) for taxpayers with modified adjusted gross
income in excess of $182,180 and is completely phased out for taxpayers with modified
adjusted gross income of $222,180 or more. (See section 3.14 of this revenue
procedure for the adjusted items relating to adoption assistance programs.) “
http://www.irs.gov/pub/irs-drop/rp-08-66.pdf
The tax credit amount for 2008 was $11,650, so that equals a $400.00 raise in credit! Great news for all adoptions finalizing in 2009.
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Adoption Update 
Hi-Great news about the 2009 tax credit!!Is there any way to know what the plan is for 2010? I heard that it was going to be cut to around $5,000, is that justa nasty rumor (I hope)?
I’ll have to look into that. I have not heard the rumor. If I find anything, I’ll post!
Good question. I’ll find out and post about it this week.
My guess is that the the “rumor” refers to the fact that the current adoption tax credit will end when President Bush’s 2001 2001 “tax cuts” end after 2010 (unless it is specifically renewed by Congress). After 2010, there may still be an adoption tax credit at a smaller level (depending on what the public law was before 2001).
Here is my question: If you finalized in 2009 things look great to get the $12,150.00, but what if you adopt in 2009 and don’t finalize until 2010? Do you still get the credit for the year you adopt in or do you get the credit for the year that you are finalizing in?
Thanks!
If you finalized in 2009 things look great to get the $12,150.00, but what if you adopt in 2009 and don’t finalize until 2010? Do you still get the credit for the year you adopt in or do you get the credit for the year that you are finalizing in?
Thanks!
Erin,
I am sorry that I have not posted yet. I am still waiting to hear back from my adoption lawyer regarding your question.
thanks!!!
thank you so much! I can wait 🙂
Erin,
Erin,
I spoke with my lawyer this morning, this is what he had to say: After it is determined that you qualify for the tax credit, you then claim the credit on your taxes in the year which your adoption finalized. However, should you bring your child home in 2009 and then not finalize until 2010, your tax credit could be determined by when exactly in 2010 the tax credit is set to expire. In the beginning or the end of 2010. I have tried to find that out, but so far have not found a date. Do you know? My lawyer did not know. He did say that he would be surprised if the bill did not pass in the House and the Senate to be reinstated. I would too. Hopefully you have sent a letter to your congressman and senator encouraging them to support this bill. Every little bit helps! So, the first plan of action is to find out when exactly the bill is set to expire. After that, I would encourage you to talk to an adoption lawyer about it. If you find out, let me know and I will call my lawyer back and see if he can give me any more information. Hope this is helpful!
thanks. I found this http://forums.adoption.com/general-adoptive-parent-support/322866-tax-credit-expire.html
It looks like it expires 12-31-2010 at midnight, I googled 2010 tax credit expiration, adoption and saw this above date a few times.
Erin,
It is my understanding after speaking with our lawyer that if your adoption finalizes in 2010, you will receive the tax credit in 2011 when you claim it on your taxes. if the expiration date is correct, 12/31/2010, then it is good throughout the entire year, so you should not have a problem when you claim it on your taxes in 2011. Again, you will want to confirm this with your adoption lawyer, as I am not a professional. Hopefully this is helpful to you and feel free to ask anymore questions! Happy New Year!
Samantha
New info I just got today from our agency….
The National Council for Adoption, has publicized information regarding the Adoption Tax Credit. The following is an excerpt from their report:
Beginning in 2011, parents will be eligible for a reduced tax credit of $6,000 per adopted child with special needs and
ineligible for any tax credit for an adopted child without special needs.
Please note that this does not occur until 2011 but we need to be aware.
***What do you think about this? Have you heard about it?
Erin,
I made a post concerning your question. Let me know if it is helpful or not.
Thanks so much,
Samantha
Erin,
I have not heard about that, but I’ll look into it! Thanks for bringing it to my attention!
Thank you so much, you are amazing!
You are welcome. Happy to do it!
Hi. If my employer reimburses my adoption related expenses (as part of my employee benefit/income), can I still claim adoption tax credits?
Thanks, Chris
Chris,
My understanding is that as long as the employer adoption reimbursement does not exceed the maxium amount of money that the adoption tax credit equals than you can still apply for the tax credit. If you payed $40,000.00 for your adoption and your employer offers a $10,000.00 reimbursement than you should be able to receive the full amount of the tax credit because the two amounts do not exceed the total cost of your adoption. However, because you received the employer money you will deduct that amount from what you intend to claim on your taxes. Hopefully that makes since. Again, I am no professional so I encourage you to ask your social worker, adoption lawyer, etc..
Hello,
I was just wondering if anyone heard about the 2010 tax credit and if it is going to be renewed.
Also, if we adopt our child at the very end of 2010, but do not finalize in America, will we still qualify for the tax credit?
You can contact your senator and reps and encourage them to support the passing of the bill that will makes the tax credit permanent. See my earlier post below for instructions on how to do that!
Concerning your adoption question, do you know if America will recognize your adoption as final? Will you have to re-adopt in the U.S.? If your agency says that you do not have to re-adopt because your adoption finalized in your child’s birth country and the U.S. does require a re-adoption, than you should be able to qualify for the tax credit. But, you need to check with your agency on that!
Hope that is helpful!
I know in previous years you had up to five years to claim the tax credit, is this still true if your adoption is complete in 2009? Also, we were told that the tax credit only applies if you owe taxes at the end of the year. We usually get a refund. Do we loose the refund for 2009 because we over paid or does the credit go toward our total federal tax liability? Meaning we get a full refund of up to $12,150 depending on how much our liability is?
If you adoption finalizes in 2009 you are eligible for the tax credit. You claim it on your 2009 taxes. I have not heard about your second question concerning refund or owing on your taxes. Who told you that? Do you have a CPA or adoption lawyer to ask? I would start there.
Thought you might find this info from the IRS.gov website helpful;
“The adoption credit is an amount subtracted from your tax liability. For expenses paid prior to the year the adoption becomes final, the credit generally is allowed for the year following the year of payment. A taxpayer who paid qualifying expenses in the current year for an adoption which became final in the current year, may be eligible to claim the credit for the expenses on the current year return, in addition to credit for expenses paid in a prior year.”
We’ve paid most expenses in ’09, but won’t finalize in ’10. We’ll be able to deduct ’09 expenses for the coming tax year.
We had hoped to adopt in 2009 and spent about $16,000 in adoption fees through our agency but had to back out as my husband lost his job. Are we still eligible for the 2009 adoption credit of $12,000?
It is my understanding that in order to qualify for the tax credit, you have to have a finalized adoption. So, no, you are not eligible. However, if you plan to complete the adoption in the future, you will qualify for the tax credit in the year that your adoption finalized. So, even if you spent $16,000.00 in 2009 and do not complete the adoption until 2010 or later you will qualify for the credit once everything has finalized. Assuming that the adoption tax credit is still a federal program. Hope that is helpful. Again, I am not a professional, so you may want to ask an adoption lawyer or your agency as well.
I finalized our adoption in 2008 and took the max credit last year on my taxes ($11650). However, in 2009 I incurred an additional $350 in adoption expenses. I started tinkering with Turbo Tax for my 2009 filing and it appears as though I can deduct this additonal $350 (I’m assuming that’s becuase the 2009 tax credit was more than 2008). Am I eligible for this? Thanks!
I am assuming that your total cost exceeds the tax credit and if that is the case, than I think that you do qualify as long as you have receipts to back up your expenses. It does not matter that your adoption finalized in 2008. My understanding is that you are allowed to claim the adoption expenses on your taxes each year until you receive all your money back. Again, I am NOT a professional, so check with your accountant or adoption lawyer to be certain.
Sandra, if you spent $16000 in adoption fees through an agency and the adoption failed then you may qualify to receive some of your money back if your attempt was for a domestic adoption. You will not receive any of the money back if it was for an international adoption unfortunately.
My question is this. I am adopting a child through DHS and all the adoption fees are covered so does that mean I am not eligible for this tax credit? I am just not sure how it works.
Thanks
Katie
Katie – When you adopt through DHS, the child is automatically considered a child with “special needs” because s/he is adopted through the foster care system. Even if your adoption costs are zero $, you qualify for the FULL tax credit. Carrie is incorrect. It is very important that you talk to DHS about this and any questions you have about the adoption tax credit.
Katie, are you saying you are paying $0 for your adoption? If you aren’t paying any fees yourself, then no, you are not eligible for the credit. The credit is meant to offset an individual/couple’s personal financial outlay for an adoption. It’s not a gift that one gets simply for adopting a child.
Attention: Carrie’s comments are misinformed: The full credit can be taken for domestic special needs adoptions even when there are no qualifying expenses. It’s important if you are adopting a child through the foster care system, that you check with a tax professional. The tax credit is substantial and, contrary to what Carrie wrote, it is an incentive for adopting through the foster care system. All children adopted through the foster care system are automatically considered “special needs” for tax purposes. Again, please check with your social workers and tax professionals. DHS has handouts on this available to you. Just ask your social worker.
I adopted both of my children through the foster care system and was able to get the adoption credit for both of them. My taxes were professionally done and the preparer checked with many people. The final outcome was it was an incentive for other people to adopt older hard to place children.
Hi I am a CPA, and hopefully adopting this year. I just wanted to point out that Carrie, though well meaning, is misinformed. Katie: If you are adopting a child that is deemed by their state as “special needs” then you do get the full tax credit regardless of actual expenses. If you are adopting a non special needs child, or completing a foreign adoption, your credit is limited to your out of pocket expenses.
We are in the final stages of a special needs adoption and just being in Foster care does not mean special needs. You will need a special needs designation from the state. If you are adopting older children, 3 or more siblings, getting a subsidy or medical assistance through Title 19 or Title IV (federal) then that should also qualify as special needs. In some DHS adoption situations the child did not suffer any physical or emotional injuries that will require ongoing support so they do not qualify as special needs. That said, most everybody we know that is adopting through DHS has the special needs designation. Our adoption is unfortunatley going to finalize in the first few weeks of 2010 due to many delays in the system and the fact that we moved. We are going to miss out on much of the credit because my wife is quitting her job to take care of the kids and our tax liability will be fairly low. I am wondering though if the adoption credit is applied before or after the child tax credit since you can run a negative child tax credit possibly, not sure on that either.
Thanks and good luck to all those adopting special needs.
Bill,
You are incorrect. Just being in Foster Care *does* mean special needs for the purposes of the tax credit. There are different definitions of what is considered “special needs” for different situations (more on this later). For the tax credit, adopting through the foster care system automatically qualifies.
From the Los Angeles DCFS (http://dcfs.co.la.ca.us/adoptions/index.html)
“What is meant by “special needs” children?
A child is considered special needs if the child meets one of the five following criteria: a child of minority ethnicity; a child three years or older; a sibling group of children who need to be placed together; a child with severe physical or emotional disabilities; a child with adverse parental background.”
The last qualification “a child with adverse parental background” automatically encompasses ALL children in foster care. The definition was written this way very much on purpose to actually encompass ALL children in foster care who do not otherwise qualify as “special needs.”
Whether the child was substance exposed in utero, was safely surrendered, or the parent decided to relinquish for whatever reason, it doesn’t matter. A child does not have to have lasting physical or emotional injuries that require ongoing support for the federal tax credit to kick in. All children in foster care are “special needs” for the purposes of the adoption tax credit. It’s an incentive for Americans to adopt from the foster care system.
Now, that said, for other purposes (other than the tax credit), there are other definitions of special needs for OTHER purposes.
The Adoption Assistance Program (AAP) payments at *higher* levels are for those with ongoing special needs requiring extra support. To get the “special needs” designation (and there can be several levels of “special needs”) for higher AAP payments and services through your county, what is considered “special needs” is very different than what is considered “special needs” for the purposes of the tax credit.
I know what I am talking about here. I’m a college professor teaching in this area specifically. I work with families who are going through the fost-adopt process. I’m also an adoptive parent (two children).
Special needs is defined by each state. While in CA foster care may automatically make a child special needs that is not the case in every state. http://www.nacac.org gives the special needs criteria for each state. It does happen sometimes that a child coming out of foster care will not qualify as special needs.
We adopted two daughters in 2009. We had planned to pay off their adoptions with the tax credit. Unfortunately, my husband was transferred, so we had to move. His employer paid our moving expenses and those were considered ‘income.’ That ‘income’ put us just over the amount we were allowed to have, to be able to collect the tax credit. ARGH. We are now getting nothing.
Is it possible to wait until next year (when our income goes back to normal) to file for the tax credit?
Thank you..we are feeling sick to our stomach’s at losing this benefit.
My gut feeling is that if your adoption finalizes in 2010 and your income is over the maximum than like you said, you can not apply for the credit. But, you should be able to in 2011 if your income is under the maximum. PLEASE DO NOT TAKE MY WORD ON THIS. I am not a professional and I encourage you to speak with your adoption lawyer or accountant about that. They would know better than me for sure. Does anyone else have any advice to offer?
Thank you so much! I will check with an accountant. We finalized in 2009. I was hoping that since the tax credit can be taken over a 3 year period, that we could just wait and collect it next year when we aren’t showing a false ‘income’ and salary is back to normal.
I think you are okay since you finalized in 2009, but you are wise to speak with an accountant!!
Congrats on your finalization BTW!
Sent from my iPhone Samantha
Really?! That is such great news!! We did two adoptions and would be losing so much money if we can’t get the credit. It would sure help us pay off our adoption loans, if we could get the credit! 🙂
You should definitely consult with a tax accountant for this year. Moving expenses are not just deductible but also do not count against AGI (Adjusted Gross Income) which has to be higher than $220,000 for 2009 to completely void your adoption tax credit. It starts to phase out at $180,000. These number are estimates.
Hello,
I have a question. My wife and I adopted through a domestic adoption. Our total out of pocket expenses are about 11k. My company offers reimbursement of $5000. However, the reimbursement is taxable, and they withhold up front. My question is, am I better off not taking the reimbursement, and applying for the credit? To me it sounds like if I take the reimbursement, I will have to pay tax on 5k, and that would reduce my fed tax credit to 6k. It seems to me that I would be better of taking the credit of 11k. I’m not sure if I understand this right…
We started the adoption and process paid all the fees. We decided to go a different path because it was going on two years waiting for a child. However, we put out over $10,000 to get in the program. Are we still eligible to some of the adoption credit since the adoption never happened? The money was spent on the adoption process, so I would think so. If I ask three people…I get three different answers. Please help. It doesn’t seem fair that we are still without a child and out of pocket over $10,000.
It is my understanding that you may only apply for the adoption tax credit once the adoption has finalized. I know that is the case for International Adoption and I believe it is the same for domestic. Here is a good article on the credit that will help explain it:
Do you qualify for the Adoption Tax Credit if the child is special needs,the adoption was finalized in 1997,and you are still receiving the subsidy up to now 2011? Can I amend taxes for any year for the special needs adoption credit?I read on a website that if the child is special needs and you received a subsidy between 2005 and 2009 you qualify.Does it matter when the adoption was finalized if the child is special needs?
We adopted two children from the foster care system. The adoptions finalized in 2001 and 2005. We had no idea that special needs children qualified, and since we had no real expenses otherwise, we did not take the credit (I wish Turbo Tax had asked us if the children were special needs!) I know it’s too late for the 2001, but is there any hope of getting any credit for the one finalized in 2005? Anyone know? I just found out about all of this the past week, and have already filed my 2010 taxes before I dound out about this.
Have you consulted with an accountant or adoption lawyer? I would do that before I take anyone else’s word for it. I am sorry to offer nothing more than that, but honestly I do not know the answer to your question.
Can you please help me with the adoption Tax Credit of 2009. I adopted a little girl in 2009 just a month before her 2nd birthday. I was told that if we didn’t do it, I would loose her. I received no benefits for her because she was under 2. She has had some changes occur and has now been identified as a “Special Needs Child” as of 2011. Do we fill out the 2011 Form 8839 for the adoption credit as a special needs child or do we have to amend the 2009 return knowing that the adoption benefits were done in 2011
Darlene,
I am sorry to say that I am not able to help you figure this out. It is way beyond me. I am not an expert on the adoption tax credit and I just do not know. Did you seek advice from your agency, lawyer or accountant? That is where I would go. Good luck.