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For expenses paid prior to the year the adoption becomes final, the adoption credit is generally allowed for the year following the year of payment. For expenses paid in and after the year the adoption becomes final, the credit is allowed in the year of payment. If a taxpayer pays qualified expenses for an adoption in the current year and prior years and the adoption becomes final in the current year, the taxpayer may be eligible to claim the credit on the return for the current year for the expenses paid in the current year as well as for any expenses paid for that adoption in the prior years. Here is a simplified table the IRS has published that shows when to take the credit:The following tables explain when to take the credit:
What I mean is, the adoption agency was telling us that we would qualify for the approximate ($12,000) 2012 adoption tax credit if we spend money on the adoption in 2012, even if the adoption wasn't finalized in 2012.
The reason I am asking is that the adoption tax credit goes down to around $5000 (as of now) in 2013. So... if we complete our adoption in 2013, then would the funds we spent in 2012 be eligible for the $12,000.00 tax credit, or would those funds just go towards the $5,000.00 tax credit?
We are currently trying to save money for the adoption and were planning on waiting until next year to get started. However, I don't want to be pinching pennies and losing dollars (since this is such an expensive process). So, if it is better for us to get started right away in order to be eligible for a better tax credit then we will.
As of right now, without knowing all that will be changed in Congress, you should look to being able to claim the full amount.
President Obama's fiscal year 2013 budget includes a proposal to make the adoption tax credit permanent and make it refundable for 2012 retroactively and for 2013. This would mean that you would be fine. I can not promise you though that it will be the same until congress makes their choices.
So just to make sure I understand you correctly. If we go ahead and start the adoption process right now, then we can claim our expenses from 2012 in 2014 (on our 2013 income taxes) under whatever the adoption tax credit is for 2013?
That is correct. I truly believe that congress will not get rid of the adoption credit as it stands. It is one that shows they are family sensitive.
By the way, best wishes on the expansion of your family.