How does the federal adoption tax credit work with international adoption?

Question

I know that we would need to spend the 11,000 or so in adoption expenses in order to get that matched in credit, but how does the tax credit actually work? If we fill out our taxes and we are getting a refund of say $500, do we get the credit on top of that or do we have to owe money in order to receive any of the credit?

Answer 1

For international adoption, you can only take the adoption credit if the adoption was finalized in 2006.

The adoption credit is a non-refundable credit. This means the credit can reduce your tax liability down to $0. But if a tax payer don't owe any taxes, the adoption credit will not give the tax payer more money back. So if you are getting $500 refund because you overpay taxes, then you will get more money with adoption credit. If you are getting $500 because you are claiming Earned Income Credit, then adoption credit may not add to the amount of your refund.

See instruction for form 8839 http://www.irs.gov/instructions/i8839/ch01.html#d0e22

Best wishes.

Answer 2

You can only get the credit for actual expenses - but what happens it that the "credit" just sits there until you use it all out. So if your taxes are $8,000 (not including withholding, just the tax amount), you will receive $8,000 (and all of your withholding) - and carry forward a credit of $2,000 for next year's taxes.

Another option - if you adopt a domestic foster child, you can get the entire $10,000 and NOT even have to spend that money first. Yup, adopt a high risk child (means over 4 years old, sibling group, et al) - and the government will pay you $10k per child - what a nice down payment for college or other expenses, you have a domestic child who needs you, they will speak English, and you will help your own country out.

Answer 3

Carryforward can only be done for up to five years - if you haven't used it all by then, the rest is lost.