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Top ten adoption tax credit facts to consider


 

Taxpayers who have adopted or tried to adopt a child in 2016 may qualify for a tax credit. Here are ten important things about the adoption credit:

The Credit. The credit is nonrefundable, which may reduce taxes owed to zero. If the credit exceeds the tax owed, there is no refund of the additional amount. In addition, if an employer helped pay for the adoption through a written qualified adoption assistance program, that amount may reduce any taxes owed.

Maximum Benefit. The maximum adoption tax credit and exclusion for 2016 is $13,460 per child.

Credit Carryover. If the credit exceeds the tax owed, taxpayers can carry any unused credit forward. For example, the unused credit in 2016 can reduce taxes for 2017. Use this method for up to five years or until the credit is fully used, whichever comes first.

Eligible Child. An eligible child is an individual under age 18 or a person who is physically or mentally unable to care for themselves.

Qualified Expenses. Adoption expenses must be reasonable, necessary and directly related to the adoption of the child. Types of expenses may include adoption fees, court costs, attorney fees and travel.

Domestic or Foreign Adoptions. Taxpayers can usually claim the credit whether the adoption is domestic or foreign. However, there are different rules regarding the timing of expenses for each type of adoption.

Special Needs Child. A special rule may apply if the adoption is of an eligible U.S. child with special needs. Under this special rule, taxpayers can claim the tax credit, even if qualified adoption expenses were not paid.

No Double Benefit. In some instances both the tax credit and the exclusion may be claimed but not for the same expenses.

Income Limits. The credit and exclusion are subject to income limitations. These may reduce or eliminate the claimable amount..

IRS Free File. Use IRS Free File to prepare and e-file federal tax returns for free. File Form 8839, Qualified Adoption Expenses, with Form 1040. Free File is only available on IRS.gov/freefile.

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Six facts for adoptive parents


If you paid expenses to adopt an eligible child in 2011, you may be able to claim a tax credit of up to $13,360.

Here are six things the IRS wants you to know about the expanded adoption credit.

1. The Affordable Care Act increased the amount of the credit and made it refundable, which 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, Form 8839, Qualified Adoption Expenses, and attach documents supporting the adoption. Taxpayers claiming the credit will still be able to use IRS Free File or other software to prepare their returns, but the returns must be printed and mailed to the IRS, along with all required documentation.

3. Documents 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 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 child must be under 18 years old, or physically or mentally incapable of caring for himself or herself.

6. If your modified adjusted gross income is more than $185,210, your credit is reduced. If your modified AGI is $225,210 or more, you cannot take the credit.

For more information see the Adoption Credit FAQ page available at www.irs.gov or the instructions to IRS Form 8839, which can be downloaded from the website or ordered by calling 800-TAX-FORM (800-829-3676).

 

 

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