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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.