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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I am in the process of adoptiing a special needs child in the

Resolved Question:

I am in the process of adoptiing a special needs child in the state of West Virginia. This will be a subsidized adoption. The first part of my question, is the federal adoption credit still in effect for 2010. In other words if I finalize the adoption this year I will file the credit on my return next year.

The second part has to do with a 401K and getting the full credit. If the credit is still in effect for this year I think the amount is somwhere around 11K and can be spread over three years. Thing is, for federal I don't believe I will owe enough taxes to get the full credith within three years. I recently changed employers and the 401K I have is either going to be paid out to me or I can roll it. I know if I take the pay out I pay tax on the amount and a penalty. I am wondering if I should take the payout and pay the penaly since I will be getting it back anyway due to the adoption credit. This will help me get the full amnt. Does the adopt. credit apply to any type of tax.
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.

Hello Daryl,


Yes, the adoption credit is still available for the 2010 tax year. If you finalize your adoption in 2010 you would claim the credit on your 2010 return. You may also claim expenses you paid in a prior year before the adoption became final.


If you do not have a high enough tax liability, then as you pointed out you may not be able to take advantage of the entire credit, as it only reduces the amount of any tax you owe. That being the case, you could certainly take a lump sum distribution from your 401k plan and your adoption credit would be used to reduce the taxes you owed on that distribution. The adoption tax credit is simply used to reduce any federal income tax you owe, regardless of the source of your taxable income.


If this was helpful please press the Accept button.


Thank you Daryl





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