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TAX CREDIT FOR ADOPTIVE PARENTS

For the 2008 tax year, under ¤ 23(b)(1), adoptive families with modified adjusted gross incomes of up to $174.730. should be eligible to receive the full $11,650.00 adoption tax credit! The tax credit completely phases out for families with modified adjusted gross incomes exceeding $214,730. (¤ 23 (b)(2)(A). (See section 3.15 of this revenue procedure for the adjusted items relating to adoption assistance programs.)

Special Rule for adoptive parents under ¤ 23(a)(3) adoptive parents of SPECIAL NEEDS CHILDREN (as determined by the state) may qualify for the full $11,650. tax credit irregardless of whether or not they have incurred any actual expenses.

Tax Credit Vs. Tax Deduction
A Tax Credit is a dollar for dollar tax reduction in your overall tax liability. A Tax Deduction lowers your income, which in turn lowers your taxes according to your tax bracket.
Limitations
For the 2008 tax year the credit starts to phase out for families earning over $174,730.00 and completely phases out at $214,730. HOWEVER, you have up to five years to use the full tax credit, so if you cannot take advantage of the full credit in the first year, you may carry the remainder forward into the into the following year(s).
  • For international adoptions the following link provides detail on how the IRS will treat the adoption tax credit for different visa's and different situations. Page 5 and 6 provide the answers. www.irs.gov/irb/2005-26_IRB/ar14.html
  • For domestic adoptions, the credit may be taken in the year that follows the year in which the expenses are incurred as well as in the year in which the adoption was finalized.
    *Note: In domestic situations, the credit is available for each effort to adopt an eligible child even if the adoption is not completed.
  • IRS Revenue Procedure 2007-66 contains the full list of inflation adjustments for 2008, including the .03 Adoption Credit. www.irs.gov/pub/irs-drop/rp-07-66.pdf
Qualifying Expenses
Qualifying expenses are those that are "reasonable and necessary" for the adoption which include: Agency fees, homestudy fees, court fees, attorney fees, traveling expenses while away from home, and other expenses that are directly related to the adoption.
Non-Eligible Expenses
  • Costs of adopting a spouse's child
  • Expenses taken as a credit or deduction elsewhere on a tax return
  • Expenses paid for through an employer program
  • Expenses paid for by federal state or local funds
EMPLOYER ADOPTION ASSISTANCE EXCLUSION
  • For the 2008 tax year up to $11,650.00. in adoption assistance provided by an employer may be excluded from an employee's taxable income!
IRS Publication 968 for the tax credit is available at IRS website: www.irs.ustreas.gov

This information is to serve as a guideline only and should not serve as a definitive source or a substitute for professional tax advice.

DISCLAIMER
The material on this website is intended for general informational purposes only, not for specific legal advice. This information pertains only to Illinois as the laws relating to the above information will vary from state to state. Also, there is no warranty that the information is accurate or up-to-date. Each situation is unique and I urge you to contact an attorney to receive advice about your specific situation. An attorney-client relationship is not automatically created as a result of any communication or contact arising out of any information obtained from this website. Moreover, an email generated from a link on this website does not create an attorney-client relationship.

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