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10 Things You Need to Know About The Federal 2010 Adoption Tax Credit and Domestic Special Needs Foster Care Adoption

  1. When you adopt special needs children who are in the custody of the government (county, state, etc.), you may claim the full amount of the federal adoption tax credit for the tax year in which you complete the adoption.
  2. If you adopted special needs children from foster care, you can claim the full amount of the tax credit, even if you had ZERO adoption expenses.
  3. The IRS makes if very HARD to figure out that you are entitled to claim the full amount of the federal adoption tax credit.  Click here to see the IRS publication.  It makes it sound like you can only claim the tax credit for expenses that you actually paid doesn’t it?
  4. Even the title of the the IRS tax form you use to claim this tax credit sounds like you only get a credit for the expenses you paid.  The title of IRS form 8839 is Qualified Adoption Expenses.
  5. The IRS tax form makes it seem like you cannot claim the credit unless you had adoption expenses which equal the full amount of the tax credit.  Click here to take a look at the tax form to claim the adoption tax credit.  If you read the instructions on THE FORM, it looks like you will only get the adoption tax credit for expenses you actually paid for your foster care adoption, doesn’t it?
  6. The instructions on Form 8839 seem perfectly clear, so why would you need to read the IRS instructions booklet for filling out the form?  Because it is all about the details. Click here to see the instructions for IRS form 8839 which are distributed separately from the form you fill out.
  7. Read the definitions on Page 2 of the instructions to see if your foster care adoption qualifies as a special needs adoption.
  8. Read ALL of the instructions on page 3 for completing line 5 of IRS form 8839.  If you adopted a special needs child from foster care, then you write the full amount of the tax credit on line 5 as the amount of your adoption expenses, unless you claimed adoption expenses for that child in a prior year.
  9. The amount of the adoption tax credit changes every year, but beginning with adoptions completed on or after January 1, 2010, the Adoption Tax Credit has become REFUNDABLE.  This means that you can get money back, instead of just applying the credit to taxes due.
  10. If you adopted a special needs child from foster care, and you did incur some adoption expenses, you should try to seek reimbursement of those expenses, or a tax credit,  from the state in which you adopted the children or the state in which you live – if this benefit is offered by the state.  This reimbursement will not effect your federal tax credit.


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