Six Things to Know About the Expanded Adoption Tax Credit

If you are adopting a child in 2011, the Internal Revenue Service encourages
you to familiarize yourself with the adoption tax credit. The Affordable Care
Act increased the amount of the credit and made it refundable, which means it
can increase the amount of your refund.

Here are six things to know about this valuable tax credit:

1. The adoption tax credit, which is as much as $13,170,
   offsets qualified adoption expenses making adoption possible for some
   families who could not otherwise afford it. Taxpayers who adopt a child in
   2010 or 2011 may qualify if you adopted or attempted to adopt a child and paid
   qualified expenses relating to the adoption.
2. Taxpayers with modified adjusted gross income of more
   than $182,520 in 2010 may not qualify for the full amount and it phases
   out completely at $222,520. The IRS may make inflation adjustments for
   2011 to this phase-out amount as well as to the maximum credit amount.
3. You may be able to claim the credit even if the
   adoption does not become final. If you adopt a special needs child, you
   may qualify for the full amount of the adoption credit even if you paid
   few or no adoption-related expenses.
4. Qualified adoption expenses are reasonable and
   necessary expenses directly related to the legal adoption of the child who
   is under 18 years old, or physically or mentally incapable of caring for
   himself or herself. These expenses may include adoption fees, court costs,
   attorney fees and travel expenses.
5. To claim the credit, you must file a paper tax return
   and Form 8839, Qualified Adoption Expenses, and you must attach documents
   supporting the adoption. Documents may include a final adoption decree,
   placement agreement from an authorized agency, court documents and the
   state’s determination for special needs children. You can still use IRS
   Free File to prepare your return, but it must be printed and mailed to the
   IRS, along with all required documentation. Failure to include required
   documents will delay your refund.
6. The IRS is committed to processing adoption credit
   claims quickly, but it also must safeguard against improper claims by
   ensuring the standards for this important credit are met. If your return
   is selected for review, please keep in mind that it is necessary for the
   IRS to ensure the legal criteria are met before the credit can be paid. If
   you are owed a refund beyond the adoption credit, you will still receive
   that part of your refund while the review is being conducted.