 Getting the adoption credit
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 Dear
Tax Talk,
I have adopted a child but it won't be final until 2007. I know I can take a credit for expenses I paid toward the adoption in 2005 on my 2006 tax return, but what about expenses I paid in 2004? I didn't claim them on my 2005 tax return because I did not know if this adoption or any adoption would be going through. Did I miss out on claiming these or can I combine them with 2005 expenses and claim it all on my 2006 return? I assume that fees paid to an adoption agency qualify as covered expenses? Thanks.
-- Leah
Dear Leah,
You may be able to take a tax credit
of up to $10,960 in 2006 for qualifying expenses paid to adopt an eligible child.
The adoption credit is an amount that you subtract from your tax liability. Qualifying
adoption expenses are reasonable and necessary adoption fees, court costs, attorney
fees, traveling expenses (including amounts spent for meals and lodging) while
away from home, and other expenses directly related to, and whose principal purpose
is for, the legal adoption of an eligible child. You can't claim expenses that
violate state or federal law, or expenses that are for the adoption of your spouse's
child or a surrogate parenting arrangement. Your adoption agency expenses would
be qualifying expenses.
If the child is a U.S. resident or citizen, you can
claim the credit on the expenditures whether or not the adoption
becomes final. You only receive a credit for a foreign child in
the year the adoption becomes final. For the American child the
credit should be claimed in the year following the expenditure if
the adoption is not finalized and the final-year adoption expenses
in that year as well. Hence if it was an American child, your 2004
expenses should be claimed in 2005, so you will need to amend
your return.Your 2005 expenses should be claimed on your 2006
Form 1040 and 2006 and 2007 expenses should be claimed on your 2007
tax return.
The
amount of your adoption credit or exclusion is limited to $10,960 for each effort
to adopt an eligible child. For this purpose, an attempt that leads to the successful
adoption of a child and any unsuccessful attempt to adopt a different child are
treated as one effort. IRS used to provide Publication 968
relating to adoption expenses but it has not been updated in several years and
is no longer on the list of available publications. Form
8839 instructions provide some guidance.
To ask a question on Tax Talk, go to the "Ask
the Experts" page and select "taxes" as the topic.
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