Tax Facts for Adoptive Parents
Adoption is often considered an overwhelming experience, but as with anything in life, taken one step at a time, it can be accomplished. If you were fortunate enough to adopt a child in 2011, you may be able to claim a tax credit of up to $13,360. This amount is periodically adjusted for inflation, and can be increased if the adopted child has special needs.
Here are six facts you need to keep in mind when considering adoption for your family or preparing your income tax returns after completing an adoption:
1. The Affordable Care Act increased the amount of the adoption credit and also made it refundable. This means you can get the credit as a tax refund even after your tax liability has been reduced to zero.
2. For tax year 2011, you must file a paper tax return, and attach Form 8839, Qualified Adoption Expenses, with the required documents supporting the adoption.
3. Documents required may include a final adoption decree, placement agreement from an authorized agency, court documents and/or the state’s determination for special needs children.
4. Qualified adoption expenses are defined as 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 adopted child must be under 18 years old, or physically or mentally incapable of caring for himself or herself.
6. If you have a modified adjusted gross income that is more than $185,210, your credit will be reduced. If you have a modified AGI that is $225,210 or more, you cannot take the credit.
These are just the highlights of the information that is necessary to make the decision to include an adopted child into your family. As a note, the credit for 2012 will be reduced to a maximum of $12,650 and is not refundable, unless congress acts by the end of 2012. (There are higher limits for children with special needs). For more information, or definition of special needs you can review the instructions for IRS Form 8839, Qualified Adoption Expenses, or contact a ShindelRock tax professional, and we can discuss your specific situation.