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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
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Experience:  15years with H & R Block. Divisional leader, Instructor
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My husband and I live in Iowa and are trying to adopt a baby

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My husband and I live in Iowa and are trying to adopt a baby and we are looking at different adoption agencies. One agency informed us that if we get started with them right away that whatever expenses we incure in 2012 will fall under the 2012 adoption tax credit (even if our adoption isn't finalized in 2012). And that when our adoption is finalized we will get credit for the expenses we incured in 2012 under the 2012 adoption tax credit.

I was told by someone else that you only qualify for whatever the adoption tax credit is of the year that your adoption is finaziled. (So likely 2013, which if there is a tax credit will likely be less than the 2012 tax credit.)

So which is true?
Submitted: 4 years ago.
Category: Tax
Expert:  Robin D. replied 4 years ago.

Hello and thank you for using Just Answer,

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:

 

Adopting a child who is a U.S. citizen or resident.
IF you pay qualifying expenses in...THEN take the credit in...
Any year before the year the adoption is finalThe year after the year of the payment.
The year the adoption is finalThe year the adoption is final.
Any year after the year the adoption is finalThe year of the payment.

 

Adopting a foreign child.
IF you pay qualifying expenses in...THEN take the credit in...
Any year before the year the adoption is finalThe year the adoption is final.
The year the adoption is finalThe year the adoption is final.
Any year after the year the adoption is finalThe year of the payment.

Customer: replied 4 years ago.
So just to clairfy, if we incure expeses for a domestic adoption in Nov. of 2012, then we can get credit on our taxes in 2013 under the codes of 2012?
Expert:  Robin D. replied 4 years ago.
You would get to claim the amounts you paid in 2012 on your 2013 tax return. I am not sure what you mean by under the codes of 2012? , but the amounts you pay in 2012 would be shown on your 2013 tax return because that would be the year after they were paid.
Customer: replied 4 years ago.

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.

Thanks!

Expert:  Robin D. replied 4 years ago.

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.

 

Customer: replied 4 years ago.

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?

Expert:  Robin D. replied 4 years ago.

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.

Robin D. and other Tax Specialists are ready to help you
Expert:  Robin D. replied 4 years ago.
Thank you