What was the adoption credit in 2008

Hannah is born in State X. Her biological parents place Hannah for adoption through a private adoption agency and voluntarily relinquish their parental rights. Hannah then is adopted. A medical exam performed shortly after Hannah's birth shows that Hannah has serious physical disabilities. Hannah isn't a child with special needs because State X didn't remove her from her biological parents and didn't make a determination of special needs.

However, Hannah's adoptive parents may claim the adoption tax credit for the qualified adoption expenses they paid in connection with Hannah's adoption, if all other requirements of the credit are met. Noah is born in Country Z and is diagnosed with serious physical and mental disabilities. Noah isn't a child with special needs because he wasn't a citizen or resident of the United States when the adoption process began. Additionally, State Y didn't remove him from the home of his biological parents and didn't make a determination of special needs.

However, Noah's adoptive parents may claim the adoption tax credit for the qualified adoption expenses they paid in connection with Noah's adoption, if all other requirements of the credit are met. If you check the box in column d indicating the child has special needs, be sure to keep evidence of the state's determination in your records.

A child is a foreign child if he or she wasn't a citizen or resident of the United States or its possessions at the time the adoption effort began. If you paid qualified adoption expenses in or any prior year in connection with the adoption of a foreign child and the adoption became final in , you can use the total expenses you paid in and all prior years in determining the amount to enter on line 5.

If you and another person other than your spouse if filing jointly each paid qualified adoption expenses to adopt the same child, the total qualified expenses must be divided between the two of you. You can divide it in any way you both agree. Enter the amount from line 3 of this worksheet on Form , line On Form , line 20, enter the total amount of employer-provided adoption benefits received in and all prior years.

On the dotted line next to line 20, enter "PYAB" and the total amount of benefits you received before Complete Form through line Then, complete lines 4 through 9 of this worksheet to figure the amount of any prior year benefits you can exclude and the taxable benefits, if any, to enter on Form , line If the adoption didn't become final by the end of , you can't take the adoption credit for that child in In general, the year of finality of a foreign adoption is determined either under Rev.

In most non-Hague adoptions, there is an adoption proceeding in the foreign country and the country isn't a party to the Hague Adoption Convention, discussed later before the child is allowed to come to the United States.

There may also be a re-adoption proceeding in the United States, either in the same year as the foreign adoption or in a later year. The expenses of re-adoption are qualified adoption expenses in the year in which the expenses are paid, subject to the dollar limitation.

Under Rev. Brian and Susan instead may choose to treat the year of re-adoption in the United States as the year of finality. In Hague adoptions, there is usually an adoption proceeding in the sending country and the country is one that is a party to the Hague Adoption Convention, discussed later before the child is allowed to come to the United States.

Secretary of State issues a certificate under section a of the Intercountry Adoption Act of , 42 U. In a few cases, the sending country may allow the child to come to the United States under a custodial agreement. If so, the child will be adopted later in a state court in the United States. Both Rev. The Hague Adoption Convention applies if you adopted a child from a country that is party to the Hague Adoption Convention and you filed your application and petition Forms IA and I with the U.

Citizenship and Immigration Service after March 31, See www. If you received employer-provided adoption benefits in in connection with the adoption of a foreign child and the adoption didn't become final by the end of , you must include the benefits in the total entered on Form or SR, line 1, or Form NR, line 1a. If you received employer-provided adoption benefits before in connection with the adoption of a foreign child and the adoption became final in , you may be able to exclude part or all of those benefits from your income.

You must also use that worksheet to complete Form , Part III, and to figure any taxable benefits to enter on Form , line If the adoption of more than one eligible foreign child became final in , complete lines 1 through 3 of the Exclusion of Prior Year Benefits Worksheet separately for each foreign child and use the combined totals to complete lines 4 through 9 of the worksheet. If you check the box in column e , you must also check the box in column g , indicating the adoption was finalized in or earlier.

Enter the child's identifying number. If you are in the process of adopting a child who is a U. However, if the child isn't a U. If you filed Form for a prior year for the same child, enter on line 3 the total of the amounts shown on lines 3 and 6 or corresponding line of the last form you filed for the child.

Special rules apply if you paid expenses in connection with the adoption of an eligible foreign child. See Column e for details. Enter on line 5 the total qualified adoption expenses as defined earlier you paid in:. Expenses reimbursed by your employer under a written qualified adoption assistance program aren't qualified adoption expenses and must not be entered on line 5.

See the examples following Employer-Provided Adoption Benefits. If you adopted a U. Any qualified adoption expenses you used to figure any adoption credit you claimed for the same child in a prior year. This is the amount you entered on line 3 of Form for this child. If you paid qualified adoption expenses in an attempt to adopt a U.

However, the adoption attempt was unsuccessful. Enter on line 7 the amount from Form , SR, or NR, line 11, increased by the total of any:.

If you aren't claiming the child tax credit for , you don't need Pub. If Form , line 15, is smaller than line 14, you may have an unused credit to carry forward to the next 5 years or until used, whichever comes first.

Use the Adoption Credit Carryforward Worksheet to figure the amount of your credit carryforward. If you have any unused credit to carry forward to , be sure you keep the worksheet. You will need it to figure your credit for If you received employer-provided adoption benefits in a prior year for the same child, enter on line 18 the total of the amounts shown on lines 18 and 22 or corresponding lines of the last Form you filed for the child.

Special rules apply if the prior year benefits were received in connection with the adoption of a foreign child and the adoption became final in See Exclusion of prior year benefits, earlier. If the child was a child with special needs and the adoption became final in , enter the amount from line 19 only if your employer has a qualified adoption assistance program, as defined earlier under Employer-Provided Adoption Benefits.

This requirement applies whether or not you received any employer-provided adoption benefits under this plan. If your employer has no qualified adoption assistance program, you must enter the smaller of line 19 or line If you are taking the credit, be sure to read Line 7 before you enter an amount on that line. If you file Form or SR, complete lines 2a through 9 and Schedule 1 Form , lines 1 through 8, 10 through 19, and 22, if they apply.

The Patient Protection and Affordable Care Act of made the adoption tax credit refundable for and The result, according to the National Taxpayer Advocate Service, was substantial delays for taxpayers, with 69 percent of all adoption credit claims filed in selected for audit.

The IRS ultimately disallowed only 1. The credit reverted to nonrefundability in The most recent year with data available by adoption type indicates that nearly half of adoptions for which the credit was claimed were for domestic children without special needs, with only 18 percent classified as special needs, and the remainder reflecting international adoptions. Office of Management and Budget. Table Crandall-Hollick, Margot L.

Geen, Rob. George, J. Internal Revenue Service. National Taxpayer Advocate Service. Treasury Inspector General for Tax Administration. Skip to main content. Tax System. Briefing Book Taxes and the Family What is the adoption tax credit? How does the federal government spend its money? What is the breakdown of revenues among federal, state, and local governments?

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Case 7. Rob and Sally adopted a child in In , they adopted again. Both adoptions cost more than the credit amount. Special-needs children. A special-needs child is a U. The taxpayer receives the full credit amount for the year when the adoption becomes final subject to modified AGI phaseout regardless of actual expenses paid or incurred. Stepparent adoption. Some jurisdictions may recognize same-sex marriages and thus consider a same-sex spouse a stepparent.

For federal tax purposes, however, the Tax Code does not; therefore, in this circumstance, this provision is moot and such partners will be treated as an unmarried couple. Adoptions may arise from surrogate birth arrangements, either by artificial insemination or embryo transfer.

In many cases, a contract specifies that the intended parents will be listed on the birth certificate, and some states allow prebirth parentage orders; thus, no legal adoption takes place. But even if the intended parents must adopt the child, section 23 d 1 B denies them the adoption credit. Families facing high costs of adopting a child may ask their CPA about the adoption expense tax credit. Qualified expenses for purposes of the credit generally are those reasonably necessary for legal adoption of a child who is under 18 years old or physically or mentally incapacitated.

For international and domestic adoptions, the credit may be claimed in the tax year in which the adoption is finalized. In addition, for domestic adoptions, qualified expenses in prior tax years may be claimed in the tax year following that in which they were paid or incurred.

Sonja Pippin sonjap unr. To comment on this article or to suggest an idea for another article, contact Paul Bonner, senior editor, at pbonner aicpa. CPE self-study. Webcast on demand. For more information or to make a purchase, go to cpa2biz. On-Site Training. To access courses, go to aicpalearning. The Tax Adviser and Tax Section.

The Tax Adviser is available at a reduced subscription price to members of the Tax Section, which provides tools, technologies and peer interaction to CPAs with tax practices. The Section keeps members up to date on tax legislative and regulatory developments. Visit the Tax Center at aicpa. The current issue of The Tax Adviser is available at aicpa. Articles and reports. An eligible child must be under 18 years old, or be physically or mentally incapable of caring for himself or herself.

The adoption credit or exclusion cannot be taken for a child who is not a United States citizen or resident unless the adoption becomes final. An eligible child is a child with special needs if he or she is a United States citizen or resident and a state determines that the child cannot or should not be returned to his or her parent's home and probably will not be adopted unless assistance is provided.

The credit and exclusion for qualifying adoption expenses are each subject to a dollar limit and an income limit. Under the dollar limit the amount of your adoption credit or exclusion is limited for each effort to adopt an eligible child. If you can take both a credit and an exclusion, this dollar amount applies separately to each.