The value of the adoption tax credit has been enhanced for 2010, one of the many tax-related provisions that was part of the massive health care reform bill that was signed into law in March 2010. The adoption credit is worth a maximum of $13,170 for 2010 and will be a refundable credit.
Refundable credits can produce tax refunds that exceed the amount of money paid in through withholding and estimated taxes. Non-refundable credits, by contrast, can at most reduce a person's federal income tax liability to zero.
The adoption credit will remain a refundable credit for 2011 as well, and the 2011 maximum dollar amount will be indexed for inflation. After 2011, the credit will revert back to being worth $5,000 (or $6,000 for a special needs child) under the law's sunset provisions.
I know that for foreign adoption, the 2010 Adoption Tax Credit is refundable and the max is $13170. And, for foreign adoption, you cannot claim any expenses on your return until the year the adoption is completed.
My question is, do I claim the 2009 expenses as incurred in 2010, or do I claim them as a carryover, even though they weren’t actually claimed on my 2009 return?
Example: if we paid 10,000 in adoption expenses in 2009 and $10,000 in 2010, should I claim $20,000 as 2010 expenses for the maximum $13,170 refund, or should I claim the $10,000 paid in 2010 and the $10,000 paid in 2009 as an adoption tax credit carryover from that year, which would give a refund total of $20,000?
Disclaimer: I’m no CPA, just a guy going through the adoption process.
I don’t believe you will be able to get a full $20,000 credit this year. If the adoption was finalized in 2010 you can claim up to $13,170 in credits for costs incurred for that child since the beginning of the process. In order to recover your full $20,000 you’ll most likely have to take it in two parts – $13,170 now and $6,830 next year.
Personally I’d claim the 2009 expenses and the balance of the $13,170 credit from 2010 expenses for this year. Then next year claim the remainder of the 2010 expenses for your 2011 return.
Correction: You won’t be able to claim more than $13,170 for a single child’s adoption. So unless your $20,000 was incurred for two children, you’ll only be able to claim a refund of $13,170 total — which you can do in 2010 according to your scenario.
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To receive the full adoption credit, does the chlid have to be a special needs adoption? I adopted a chld that we had as a foster child and then we took over guardianship and then when he was nine we adopted him….took that long for the parental rights and dcs to finalize. We do not receive a subsidy from the state due to the fact he went from foster to guardianship to adopt. Thanks for any information.
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