Newcomer to adoption tax credit

Originally Posted By SharonSorry to be so late in responding.There is a $10,000 tax credit, which is per child. For international adoptions, whether of healthy or special needs children, you can take the full credit only if you incur at least $10,000 in "qualifying adoption expenses". If you have less than $10,000 in qualifying adoption expenses, the credit is only the amount of qualifying adoption expenses. Be reassured, however, that most internationally adoptive families will qualify for the full $10,000. (However, if you travel to bring home two children at the same time, you will be able to count your travel expenses only once, and that may affect your ability to claim the full credit for your second child.) For an international adoption, you can take the credit only AFTER an adoption is finalized, although the IRS has not yet clarified its definition of final, which can be important. (For example, the INS says that if all relevant parents do not see the child overseas prior to the foreign decree being issued, the adoption is not final until the parents readopt in the U.S., but it is not clear whether the IRS will apply the same rules. That should be cleared up by the end of this year.)The credit is not a "payment". It is an offset against your total tax liability. Remember that your total tax liability is the bottom line on your tax form, and includes both what may have been deducted from your paycheck by your employer for federal taxes and what you will normally pay on April 15. In other words, if your total tax liability is $10,000 and you get the adoption tax credit for one child, you will not have to pay any tax, when the credit is factored in. You will get a refund only if you already paid some of that tax through your paycheck; that part will be returned to you. If your total tax liability is less than $10,000, you may carry the unused portion of the credit forward for up to five years. In other words, if your total tax liability in a given year is $5,000, you will use $5,000 of your credit to wipe it out. Then, the following year, if your total tax liability is $5,000, you can use the remaining $5,000 credit to wipe it out. My recollection is that the credit can be carried forward for up to five years, though please check to be sure I am accurate.You will claim the credit when you file your income tax for the year in which the adoptions are final. If you use tax software, it will automatically ask about adoptions and fill out the required schedules. If you use an accountant, he/she should have the necessary forms. If you do your own taxes without software, you can download the necessary forms from the IRS website.