TAX TIP No. 48
Raising kids is expensive. And if you're trying to adopt, it can cost you even more. Watch "Children as tax deductions"
But there is tax help available. Parents can claim a tax credit that covers some adoption expenses. For 2007 returns, the credit could be as much as $11,390.
The exact year you can claim your expenses depends on several factors, including when the expenses were paid, when the adoption was finalized, and even whether your new son or daughter is a U.S. citizen or resident.
Domestic vs. foreign adoptions
If the child you adopt is U.S.-born or a resident, there are Internal Revenue Service guidelines on when you can take the credit.
|When to claim the adoption tax credit|
|Any year before the year the adoption becomes final.||The year after the year of the payment.|
|The year the adoption becomes final.||The year the adoption becomes final.|
|Any year after the year the adoption becomes final.||The year of the payment.|
Court costs, adoption charges, attorney fees and travel expenses are some of the items covered by the credit.
The rules for a foreign adoption are slightly different. In these cases, any costs you incur cannot be taken until the year the adoption is final. Once your adoption of a foreign-born child is completed, any expenses you pay after that can be claimed the year they are paid. With domestic adoptions, you can claim your expenses even if the adoption never is completed.
The final adoption date -- and availability of the tax credit -- in cases involving non-U.S.-born children depends on when the foreign-born child receives an "immediate relative," or IR, visa from the Department of State. Because there are various types of IR visas, check out Internal Revenue Announcement 2005-45 for details that could affect your particular circumstances.
Special rule for special needs cases
An adoption is considered a special needs case when the child is a U.S. citizen or resident when the process begins and the state or District of Columbia has determined that the youngster should not or cannot be returned to his or her original family.
The governing jurisdiction also must rule that because of special factors, assistance is required to place the child with adoptive parents.