Mary K. Wimsett
April 18, 2010
By now, many of you are probably aware that the recent federal health care legislation renewed the adoption tax credit. The credit was set to expire this year if not renewed. Without the renewal, the adoptions credit would have reverted to $5000. What many do not realize is the changes will result in a tremendous financial benefit to adoptive families who adopt special needs children or children who have been in Florida’s foster care system.
Not only has the adoption credit increased to $13,170 per adoption, the new law provides that the adoption tax credit is now refundable. This means that many more families who are adopting from the foster care system will receive a payment. Previously, many families did not have the tax liability to offset the credit. Now they will receive the refund, even if they owe zero in taxes.
For private adoptions, the family may deduct qualifying expenses such as reasonable and necessary adoption fees, court costs, attorney fees and travel expenses. In non-US adoptions, the credit cannot be taken unless and until the adoption becomes final. Note that for US adoptions, expenses can be claimed even if the adoption is never completed. There is also an income limit for private adoptions to be eligible.
The credit has only been extended through 2011. Thus it is important for adoption advocates to continue to encourage our legislators to renew the credit.
The enhancements are effective for tax years beginning after December 31st, 2009. This means that any adoption occurring after January 1st, 2010 is eligible for the higher credit.
Form 8839 must be completed and instructions for completing the form can be found at IRS.gov. You should consult your tax professional for details concerning your specific tax situation.