Wednesday, April 16, 2008

Questions re: Adoption Tax Credit

For those of you who have received this credit, feel free to comment to add or correct. Here goes:

It is possible to make too much money to qualify for the credit. If your income is over 200K, you're pretty much out of luck.

The amount of the credit is $11,390 for 2007
For 2008, the amount will be $11,650

There are proposals on the table to end the credit as early as 2010 as it has no worked the way lawmakers intended. Only 17% of those who used the tax credit have adopted domestically and from foster care.

There are actually two tax issues here. The first covers adoption EXPENSES (and those expenses have to fit into an IRS-approved list). The second covers special needs adoptions even if you incurred no expenses. So, if you adopt from China, you get a tax credit of UP TO $11,390 of your out-of-pocket expenses for that adoption.

If you adopt from foster care, you get the tax credit of $11,390 and don't have to document any expenses as long as the adoption is "special needs" (which most all are). Just make sure your adoption paperwork specifies "special needs". If you get a post-adoption subsidy contract, you're in that category. And by all means, keep your paperwork. I think now that the IRS has cut us this ginormous of a check, someone is bound to check in on us. And next year, we will be doing the very same happy dance of rebate check heaven following Bit-Bit's adoption.

This is all based on your TAX LIABILITY for that year that you adopted or incurred expenses. So, if you did not have $11,390 worth of liability, you can get your credit in chunks for up to 5 years.

So, yes - to answer your question S. - that does indeed mean "big fat checks" for some (YAY) even far beyond the amount of $11,390 especially if those same people had a mortgage, daycare expenses, tithe 10%, have vehicle taxes they deduct, business expenses, and so on. It can really add up. So, some people do end up getting this all in one check.

A guy I worked with adopted from China 5 years ago and told me about the year they got a $13,000-plus refund check. I believed him, but hardly could wrap my brain around it. Now, he and his wife had about $20,000 in expenses for their daughter's adoption, so for him it was like putting money back. For those of us who adopt from foster care and basically have no expenses (we were reimbursed $1000 for legal expenses and found a good attorney who worked with the cabinet a lot and could do the adoption pretty close to the $1000 amount and billed the cabinet directly and we were billed for the remainder - a whopping $86) it's a great start to your kids college funds, or remodeling their bedrooms, or buying that family car you need for your now larger family, or even paying off debt you racked up buying baby gear.

I hope the government does not end this program. I know it did not encourage domestic adoptions the way it intended. But that doesn't mean we have to throw it out. We've known about the tax credit since a little before Cookie's adoption. Knowing about it made our decision to open our home again a little easier. Knowing about it made it a total no-brainer to adopt again. We feel like it's God's way of assuring us that as long as we are willing to lay it all down and follow His will for our lives, He will provide. I had to quit my job almost a year ago. Since then, we're OK. This will better allow me to keep teaching college part-time and see my girls every morning instead of leaving while they are still asleep. I actually get to eat Cheerios with Cookie every morning and watch the birds eating out of the bird feeder on the patio. There are no better conversations I have than with her about cereal and birds.

Two weeks to go until the judge declares Bit-Bit free for adoption!


Maerlowe said...

Ya, AFAIK, you're right on.

We finalized in 2007, filed our taxes in early February, and got a Big Fat Check later that month. We also had donations, mortgage and auto interest, and a few other items, so in all it added up to more than the tax credit, but we only used about half of it this year, so next year, we'll get another BFC.

Which is why we now have travertine floors, less than 4k in credit card debt, and one car paid off (though only 6 months early).

S. said...

Thank you for the info!!! Again, you are a sleuth for info!!!
I can't wait till next yr to file-we cannot do it yet-as one adoption is pending for this yr. Another is a cautiously optomistic thought. (don't want to get our hopes up too much on that one) But that would sure help us out alot. There should be these tax breaks! I don't work full time because of these babies-and I have foster care friends who quit their jobs to do it also. We all took a big hit by doing it-but see the better value is spening needed time with these kids. The IRS should be good to us! If it was not for us they would have an Orphanage System in this Country. Not many people out their will do what we do-and live with the risks. Money does not make it better or fix it for us but it can sure help out!

Julie said...

I so wonder what this means for me- as I bet I lose this whole thing because I intervened-even when I adopt her next year from myself as I am her guardian. So weird.

Jess said...

Great info about the tax credit, where did you get thins information? I found it interestion that it was designed to encourage foster care adoptions, and only 17% are actually fostercare adoptions. I wonder why they don't just right in a clause regarding international and domestic?

Overwhelmed! said...

We got a tax credit for our son's private domestic adoption. It really helped.

Obviously the tax credit is not the reason we're trying to adopt again but it sure will help again. I hope they don't do away with this adoption tax credit!

Two weeks to go until the judge declares Bit-Bit free for adoption? How exciting! I'm so happy for you.

Marthavmuffin said...

Yes, I was a little afraid to use this credit as we incurred NO expenses adopting Jamie in August, but the wording states if you are recieving a stipend for the adoption then the child is considered special needs. We are getting all that came out of our checks last year and will get the rest next year. Strange but true and such a blessing!

Becky said...

HI, can't remember how I found your blog in my hunt for other adoptive moms.?
We adopted both our children through a private agency, domestic. First in 1999, credit only $5,000. Second in 2004, final in 2005. Credit was $10,500 I think. We are getting ours back in smaller increments each year, we have to have a carry over each time, it was not all given to us all at once. Not sure I'm understanding why some of you get it all in one chunk.??
Hope you don't mind my popping in and commenting. Have enjoyed reading your blog.

Marthavmuffin said...

Becky I think we got it back in one chunk because we both have too much coming out of our checks and we paid in too much to the irs. What we got back was simply the entire tax we paid. (which really should have been much less) We still have a few k remaining which we will get back for next year i guess.