1. Adoption Tax Credits
Michael L. DeVries, CFP®, CHBC, EA
e-mail – mike@vmde.com
Office – www.vmde.com
Presentation – Slideshare.com

2. Question
Why Adopt?

3. His Heart, Our Call
 "He took a little child and had him stand among them. Taking him in
his arms, he said to them, 'Whoever welcomes one of these little
children in my name welcomes me; and whoever welcomes me
does not welcome me but the one who sent me.'".....Mark 9:36 - 37
NIV
 "What do you think? If a man owns a hundred sheep, and one of
them wanders away, will he not leave the ninety-nine on the hills
and go to look for the one that wandered off? And if finds it, I tell
you the truth, he is happier about that one sheep than the ninety-
nine that did not wander off. In the same way your Father in heaven
is not willing that any of these little ones should be lost.".....Matthew
18:12-14 NIV
 "Religion that God our Father accepts as pure and faultless is this:
to look after the orphans and widows in their distress and to keep
oneself from being polluted by the world.".....James 1:27 NIV

4. 2013
Tax Benefits for Adoption
 Non-Refundable Tax Credit
 $12,970 Credit Amount
 Dollar for Dollar reduction of tax
 25% Tax Bracket - $50,000+ Deduction
 Employer Adoption Assistance Program
 $12,970 exclusion from Gross Income
 Can use Both – but not on the same $

5. Federal Tax Credit
 Credit
Year Credit Note
2010 $13,170 Refundable
2011 $13,360 Indexed;
Refundable
2012 $12,650 Non Refundable
2013 $12,970 Non Refundable
 Dollar for dollar reduction of tax
 Made Permanent – American Taxpayer
Bill of 2012

6. Qualified Adoption Expenses
 Reasonable and necessary adoption fees
 Court costs
 Attorney fees
 Traveling expenses (including amounts
spent for meals and lodging) while away
from home
 Other expenses directly related to the
legal adoption of an eligible child.

7. Qualified Adoption Expenses
Not Expenses…
 Connected with the adoption of a child of a taxpayer's
spouse
 Of carrying out a surrogate parenting arrangement
 That violate state or federal law
 Paid using funds received from a federal, state, or local
program
 That are reimbursed by an employer
 But, benefits provided by an employer under an adoption
assistance program may qualify for the exclusion.

8. Qualified Adoption Expenses
 Expenses in connection with an
unsuccessful attempt to adopt an eligible
child before successfully finalizing the
adoption of another child can qualify.
 Expenses connected with a foreign
adoption (i.e., one in which the child isn't a
U.S. citizen or resident) can only qualify if
the child is actually adopted.

9. Qualified Adoption Expenses
 Taxpayers who adopt a child with special needs
will be deemed to have qualified adoption
expenses in the tax year in which the adoption
becomes final in an amount sufficient to bring
their total aggregate expense amount for the
adoption up to $12,970 for 2013.
 They can take the adoption credit or exclude
employer-provided adoption assistance up to
that amount, whether or not they had $12,970 of
actual expenses.

10. Eligible Child
 Child under the age of 18 at the time the
qualified adoption expense is paid
 If the child turned 18 during the year, the
child is an eligible child for the part of the
year he or she is under age 18
 A person who is physically or mentally
incapable of caring for himself is also
eligible, regardless of age

11. Special Needs Child
 Child whom the state has determined cannot or
should not be returned to his parents and who
can't be reasonably placed with adoptive parents
without assistance because of a specific factor
or condition, e.g., ethnic background, age,
membership in a minority group, medical
condition, or handicap.
 Only a child who is a citizen or resident of the
U.S. can qualify as having special needs.

12. Employer Adoption Assistance
 Also, adoptive parents may be able to exclude from their
gross income up to $12,970 of qualified adoption
expenses paid by an employer under an adoption
assistance program. The credit is nonrefundable and
both the credit and the exclusion are reduced (phased
out) if the parents' income exceeds certain income limits.
 Adoptive parents may claim both a credit and an
exclusion for expenses of adopting a child. But they may
not claim both a credit and an exclusion for the same
expense.

13. When to Claim the Credit
 If the qualifying expenses are paid before
the year the adoption becomes final, the
credit is claimed for the year after the one
in which the expenses are paid.
 If the expenses are paid in the year the
adoption becomes final or in a later year,
the credit is claimed for the year in which
the expenses are paid

14. Example
 $3,000 was paid in 2013
 $5,000 in 2014
 $5,000 in 2015
 Adoption is Final in 2015
 The taxpayer claims a $3,000 credit in 2014 (for
the 2013 expenses).
 The $10,000 of expenses for 2014 & 2015 are
combined together for the credit in 2015.
 How much, if this were a Foreign Adoption?

15. When to Claim Exclusion
 Employer-provided adoption benefits are
excluded from the employee's gross
income for the year in which the employer
pays the qualified adoption expense.
 In the case of a foreign adoption, neither
the credit nor the exclusion may be taken
until the year in which the adoption
becomes final.

16. Refundable vs. Nonrefundable
 2010 & 2011 – Refundable
 Previously and after 2011 - Nonrefundable
 The amount of the credit can't exceed the
sum of your regular and alternative minimum
tax, reduced by the sum of your other
nonrefundable credits
 The credit can reduce your tax
 The amount of credit in excess of your tax will
not be refunded, except for 2010 & 2011
 Credit is carried-forward 5 years (Notice 2010-66)

17. Income Limits
 The credit allowable for any year is phased out
for taxpayers with Adjusted Gross Income over
these amounts:
Year Starts No Credit
Over
2013 $194,580 $234,580 MAGI
 The phase-out rules for high-AGI taxpayers
apply for the exclusion as well.

18. How to Claim
 Adoptive parents who paid qualified
adoption expenses or who received
employer-provided adoption benefits must
use Form 8839 to compute the amount of
the credit and the amount of benefits that
may be excluded from their gross income.
 Must Paper File Return

19. How to Claim
 Need valid Taxpayer Identification Number (Social Security
Number)
 IRS can disallow the credit and the exclusion if a valid
taxpayer identification number (TIN) for the child is not
included on the return
 Taxpayers can get what is in effect a temporary identification
number for a child they are in the process of adopting. This
form of TIN, called an adoption taxpayer identification number
(ATIN), enables the adoptive parents to claim the credit and
exclusion for qualified adoption expenses. Form W-7A is used
to get an ATIN.
 When the adoption becomes final, the adoptive parents must
apply for a social security number for the child and, once
obtained, the social security number, rather than the ATIN,
must be used.

20. How to Claim
 Notice 2010-66 requires the following
attachments to your return:
 An adoption order or decree for US or foreign
adoption finalized in the US
 For foreign adoptions governed by the Hague
Convention a Hague Adoption Certificate
(Immigrating Child) and either an IH-2 Visa or
a foreign adoption decree translated into
English

21. How to Claim
 Notice 2010-66 requires the following
attachments to your return:
 For foreign adoptions not covered by the
Hague Convention, either an IR-2 or IR-3 Visa
or a foreign adoption decree translated into
English
 For US adoptions that are not finalized:
 An adoption taxpayer identification number,
obtained by the taxpayer for the child, included on
the taxpayer’s income tax return

22. How to Claim
 Continued:
 A home study completed by an authorized
placement agency
 A placement agreement with an authorized
placement agency
 A document signed by a hospital official
authorizing the release of a newborn child from the
hospital to the taxpayer for legal adoption
 A court document ordering or approving the
placement of a child with the taxpayer for legal
adoption, or
 An original affidavit or notarized statement signed
under penalties of perjury from an adoption
attorney, government official, or other person,
stating that the signor:

23. How to Claim
 Continued:
 An original affidavit or notarized statement signed
under penalties of perjury from an adoption
attorney, government official, or other person,
stating that the signor:
 Placed or is placing a child with the taxpayer for legal
adoption, or
 Is facilitating the adoption process for the taxpayer in an
official capacity, summarizing the facilitation.

24. How to Claim
 Special needs children adoptions require the
adoption decree or successful foreign
adoption papers, as well as a copy of the
state determination of special needs

25. Dependency Deduction
and Other Benefits
 Your legally adopted child will qualify as your dependent
if the other dependency tests are met, e.g., you provide
more than half of the child's support.
 Even if the adoption isn't yet final, the child will be your
dependent is if he or she was placed with you for legal
adoption by an authorized placement agency and was a
member of your household for at least part of the year.
 Special requirements apply to adoptions of foreign
children who aren't U.S. citizens or residents.
 Once child is your dependent, you will qualify for the
dependency deduction and for other tax benefits, such
as the child tax credit.

26. State of Michigan
Adoption Tax Credit
 February, 2013 House Bill 4286 to restore
Michigan’s Adoption Income Tax Credit to
where an eligible taxpayer can claim a
credit equal to the taxpayer’s qualified
adoption expenses that exceed the
amount of the federal tax credit, or $1,200
per child, whichever is less.
 Received bipartisan Support in the past
 Refundable Credit in the past

27. State of Michigan
Adoption Tax Credit
 Eligible Taxpayer is a taxpayer that
claimed a credit under IRC § 23 for the
same tax year that the taxpayer is
claiming the Michigan adoption expenses
credit.
 Qualified adoption expenses are
expenses that are eligible to be used
under the federal IRC § 23.

28. Adoption Tax Credit
Notice:
To ensure compliance with Treasury Department
regulations, please be advised that any tax
advice that may be contained in this
communication is not intended or written to be
used, and cannot be used, for the purpose of (i)
avoiding tax-related penalties under the Internal
Revenue Code or applicable state or local tax
law provisions or (ii) promoting, marketing or
recommending to another party any tax-related
matters addressed herein.