Good news about tax credit!

[sbrinton]

I just read that the federal adoption tax credit has been extended through the end of 2011. The limit has been increased to a little more than $13,000 and now the full credit is refundable even if you owe no taxes.

This is great news for many of us hoping to adopt in the next year or two!

It was a part of the health bill...

[Polliwog]

Extending the credit for one more year isn't that big of a deal. Helpful, but not that much. Hopefully, it will be extended much longer than that.

I always wonder what having the credit be refundable will actually mean. It can be spread over a five year period (or is it six, I forget) and special needs adoptions are eligible for the full credit not dependent on expenses.

[queenjane]

This is HUGE! Amazing news. When my friend told me, i didnt believe it. I couldnt believe that it could be true. I hope to finalize two adoptions this year, and the idea that i could get the full credit (times two) given to me in the form of a tax refund...amazing. The would really be lifechanging for my family.

Otherwise, i wouldnt even be able to use the credit, as i generally have little to no tax liability to refund anyway. So this is a huge amazing benefit to those of us who adopt special needs kids but cant use the credit due to not owing taxes anyway.

Im so afraid the govt is going to realize what they've done and decide they didnt REALLY mean to say "refundable".

[sbrinton]

It being refundable is huge for us. Otherwise it would have taken us 3-4 years...now we'll be able to get the full amount back in one tax year.

[queencarr]

Yeah, I am holding my breath waiting to see what refundable means. I am hoping that it doesn't apply only to new credits, rather than the rolled over ones. I've actually read the language in the bill, and can't make heads or tails of it other than it is extended and now refundable. If we can get the rolled over amounts (and I'm pretty sure it is 6 years, not 5, because as it is right now it is the year you take and and 5 additional years) we have credits that are worthabout half of our current annual income That would be huge for us!!! Because of the job change, we have used very, very little of the 2 credits we are eligible for.

[Polliwog]

I looked at the bill, too. It definitely isn't clear about what refundable means. I can't see them handing $13,000 over in one year. It would be nice, though. I've got four years left on C's credit and I haven't used a dime. And Polliwog's adoption will finalize this year.

[queenjane]

Originally Posted by Polliwog

I looked at the bill, too. It definitely isn't clear about what refundable means. I can't see them handing $13,000 over in one year. It would be nice, though. I've got four years left on C's credit and I haven't used a dime. And Polliwog's adoption will finalize this year.

But refundable is a specific tax term. So unless they are using the term in a different way than the IRS that if you qualify for the credit, you get the whole thing regardless of what you put in. Thats how the housing credit worked and the EIC works, both are refundable.

[Polliwog]

I get that but the tax credit was just extended not reauthorized. So, the six year timeframe is still in place. Right? So, we need more information. Is it $13,000 in one year or over six? Either way, I'm not complaining but it would be so niche to have it in a lump sum.

[queenjane]

Originally Posted by Polliwog

I get that but the tax credit was just extended not reauthorized. So, the six year timeframe is still in place. Right? So, we need more information. Is it $13,000 in one year or over six? Either way, I'm not complaining but it would be so niche to have it in a lump sum.

But you dont HAVE to roll it over for five (six?) years...that was just a benefit to parents who didnt pay the whole thing in taxes in one year. But you COULD have gotten it back in one year if you did pay that much in taxes. So i dont see why it being refundable would change that (and there would be no point in rolling it over if you could get it all back in one lump sum anyway.) They gave the homebuyers credit in one lump sum.

That being said, who knows how this will actually play out.

I wonder how it will affect those who finalized earlier than this year. Will it be refundable for them too (will they be able to get the balance of their rolled over credit refunded in a lump sum??)...

[Polliwog]

Right, but I'm worried that the amount that someone is eligible to get back would be limited in some way. After all, our adoptions didn't cost anything. And I can't really see it as a lump sum kind of thing. I really can't. I hope so, but I really doubt it.

But it would be realllly nice.

[tiffani]

my understanding of how it *used to* work, is that it was based on your adoption expenses, up to a limit of $whatever the limit is. I don't think that has changed, so if your adoption cost you zero dollars, you won't get anything back. If your adoption cost you $20,000, you'd be able to claim expenses up to the limit amount. and it's per child, and includes travel expenses.

Given the fact that most people don't adopt a huge number of kids, I would think that the credit being refundable means that even if your tax burden is zero dollars, you can still claim (and be refunded for) your adoption expenses up to the limit, all in one year. that would be awesome, and I really do hope that's what this really means!!

I'd love to hear the opinion of a tax accountant who has read it.... anyone?

[Polliwog]

People who adopt children with special needs get to claim the full credit. That includes the majority of children adopted from foster care (those who receive post adoption subsidy for the kids.) You don't have to have spent a dime for the adoption. The amount that you get back is limited to your tax liability, though. That's how it works now.

Now, the confusion is whether people who pay adoption expenses (usually private domestic and international adoptions) get more of a benefit. That would really make me angry. (It's late, and I'm REALLY tired, so if this comes out offensive in any way it's not intentional.) A big part of the ATC is to get children out of the system. It would not make sense for any new tax system to change that.

[tiffani]

It's not offensive at all, and I wasn't saying how I thought it should or shouldn't be, just how I think it is...I haven't really looked into it, so I could be wrong, and am open to correction!

if your adoption is a special needs adoption through the state and you're receiving post-adoption subsidy, you're getting some benefit, right? If you adopt special needs kids internationally, you don't get any of that benefit, as far as I know... If your adoption through the state doesn't actually cost you anything (and of course it always costs *something*, every adoption has invisible costs that can't really be counted officially) then what expenses would the tax credit be reimbursing you for? I'm not saying that people *shouldn't* get tax credits in that circumstance, but the whole point of *this* tax credit is to offset the costs involved in adopting, period. so if your adoption is already paid for by the state, I doubt you are allowed to claim it on your tax return, yk? I think everyone who adopts through the state should get adoption subsidy, but that's a different program from this... it's not a matter of who is getting more of a benefit, it's just an effort to reduce the cost of adoption overall, no matter where your kids come from.

[Polliwog]

But you are misunderstanding the tax law. Special needs adoptions are eligible for the full adoption tax credit. It doesn't matter that we haven't paid anything. The goal (for those families) is to encourage people to adopt children who might not be adopted (those with special needs.) That's the way the current tax law is written. It's not currently refundable beyond the adoptive parents current tax liability but has NOTHING to do with adoption expenses. That's why if you use tax software to do your taxes it asks if the adoption was a special needs one. Then doesn't ask anything about expenses. We get the full $12,000 credit over a six year period if our tax liability is at least that much.

Other types of adoptions are different. Those families have to show expenses. So, there is a huge difference. The government currently sees the two types of adoption as two very different things and the benefits are different. If a private adoptive family, for example, spent $6,000 on expenses related to the adoption, that's all the tax credit they are eligible for. See the difference?

[tiffani]

ok, I get you... so before this new bill, special needs families got the entire amount -- more like a payment, really, than a reimbursement of expenses. Is that going to be changing? I hope not, and I hope they will pay it out in one lump sum -- I don't know why they wouldn't, if it's refundable, you should be able to claim it all at once....

anyone know for sure?

[Polliwog]

Kinda sorta. It was based on your tax liability over a maximum of six years. For example, I was unemployed a lot of the first two years. So, I've used none of C's credit. But, if I had a huge tax liability over the next four years, I could use the full $12,000. I don't own my house, so I don't have taxes related to that. So, it's all about my income.

[queenjane]

As its written now, they have not changed the eligibility requirements for the adoption credit, so that means that parents who adopt SN kids should get the full amount refunded to them. Thats the point of a refundable credit.

So i think the law as its been amended is pretty clear cut...but my fear is that someone is going to figure out just how much this is going to cost, and change their minds. Hopefully, the people who wrote it knew what they were doing and felt that APs really deserve this additional benefit. I think it really could encourage people to adopt state kids, because they would then be able to afford perhaps to add on to their home/renovate to accomodate another child(ren), buy a larger vehicle, pay for all those additional classes, schooling, and such that an adoption subsidy might not be enough to cover, etc. But i'm trying not to think about it too much lest they change it and my little heart gets broken.

[alicia622]

I think it's great

[Polliwog]

That may be why it was only extended for one year. I think it's not likely to be sustainable. I've got a friend who finalized one adoption last year and has three that should be finalized this year (one maybe, two definitely.) She's realllllly hoping that you are right.

I would consider adopting one more child if the ATC continues to be refundable. I would need a bigger car and a bigger house. Those are the only two things that are really holding me back right now.

[queenjane]

Do they normally just extend it a year, or longer? (Or is this the first year it was to expire?)

Maybe if there is a big increase in adoptions they will say its a good thing and keep it. *fingers crossed.*

My friend should finalize three (maybe four if baby sib is placed with them) kids this year...so yeah they are pretty excited!!!