It's tax time!

I'm sure many of you are starting to work on your 2011 taxes, or are at least thinking about it, and if the adoption tax credit applies to you, please do yourself a favor and invest in an accountant who is well-versed in adoption tax credits. We have received lots of questions about the tax credit and our agency is unable to offer any tax advice however we hope that you will find the information below helpful. Your accountant (who is educated on the adoption tax credit!) will be able to answer questions specific to your situation.

Who Qualifies?

You qualify for the adoption tax credit if you adopted a child and paid out-of-pocket expenses relating to the adoption. The amount of the tax credit you qualify for is directly related to how much money you spent on adoption-related expenses. If you adopt a special needs child, however, you are entitled to claim the full amount of the adoption credit, even if your out-of-pocket expenses are less than the tax credit amount.

How much is the tax credit?
The adoption credit is calculated on Form 8839 Qualified Adoption Expenses (PDF). You may claim an adoption credit of up to $13,360 (for tax year 2011) per eligible child.

Adoption Tax Credit Amounts
2013: $5,000 or $6,000 for a special needs child (projected)

2012: $12,650, non-refundable

2011: $13,360, refundable

2010: $13,170, refundable

2009: $12,150, non-refundable

2008: $11,650, non-refundable

2007: $11,390, non-refundable

2006: $10,960, non-refundable

The adoption credit was scheduled to sunset at the end of 2010. However, the massive health care reform legislation extended and revised the adoption tax credit.

The health care legislation enhanced the adoption tax credit in three ways:

1. It bumped the maximum adoption credit from $12,150 to $13,170.

2. It extended this increased tax credit amount to the year 2011.

3. It made the adoption credit refundable.

The Tax Relief Act extended increased dollar amounts for an additional year, through 2012.
Taxpayers who adopt a special needs child can claim the full amount of the adoption credit without regard to the actual expenses paid in the year the adoption becomes final.

Adoption Tax Credit Resources and Information
Internal Revenue Code Section 23 (Legal Information Institute, Cornell Law School)
Adoption Credit (Tax Topic 607 from the IRS)
IRS Audit Guidelines and Required Documentation (from the Internal Revenue Manual)
Revenue Procedure 2010-40 for the year 2011 adoption credit and phase-out amounts.
Revenue Procedure 2011-52 for the year 2012 adoption credit and phase-out amounts.

Refundable Adoption Credit and Substantiation Requirements

Adoption Tax Credit Instructions from the IRS
Adoption Credit
Adoption Taxpayer Identification Number (ATIN)
Instructions for Form 8839