Will the Adoption Tax Credit Go Away After 2012?

Posted on 01. Apr, 2012 by in Archives, Domestic Adoption

Here we are, already in April of 2012.  Tax time.  You have probably already filed your 2011 taxes.  So what does the adoption tax credit look like in 2012? 

Let’s take a quick look at the history of the adoption tax credit since this may show us what will happen to it in the future.

The adoption tax credit began in 1996 with the Small Business Job Protection Act.  The credit was only $6,000 for special needs adoptions, and $5,000 for all others.  Since then, the credit has been extended and increased several times but it has never been made a permanent part of the US tax code.

From 1996 to 2009, the credit was non-refundable.  This meant you could only claim the credit for the amount of tax owed for that year.  

For example, in 2009 the adoption tax credit was $12,150.  If you paid $6,000 in taxes to the government, you could only get that amount of the credit.  You’d have to wait another year before claiming the rest of it – provided you had enough qualified adoption expenses.

In 2010 and 2011, the laws changed and made the credit refundable.  This meant you would get the entire tax credit amount regardless of the tax you owed to the government that year – assuming of course that you had enough qualified adoption expenses.

Check out my post about the 2010 and 2011 adoption tax credit – you want to be sure to get any of the refundable credit coming to you.  Here is a good article explaining the adoption credit written by Mark McDermott, former President of the American Academy of Adoption Attorneys.

History tells us that both parties within Congress favor the adoption tax credit, which is why they keep on extending it year after year.  That is good news for adoptive parents, because it means there is a good possibility that the credit could be extended again – maybe even made permanent.  

What does the credit look like for 2012 and beyond?

Under the current law, in 2012 the adoption tax credit goes back to being non-refundable and the amount is actually lowered from $13,360 to $12,650.  This is the first time it is scheduled to go down from a prior year.  

This is a concern, but it is important to remember that laws change frequently – and it very well could change for 2012.  The bigger issue is that the adoption credit needs to be extended beyond 2012 – preferably made permanent, refundable, and allowed to be claimed in the same year that you have adoption expenses.

Legislation to the rescue…

There have been several attempts to extend the credit - President Obama’s 2013 budget plans to have the credit become refundable in 2012 and 2013.  Then there is the Adoption Tax Relief Guarantee Act. It would make the credit permanent and allow adoptive families to claim the credit in the same year that their expenses are incurred – regardless of when the adoption becomes final.  

If no new law is passed, the credit will revert to only applying to special needs adoptions – and lowered to $5,000.

Two things you can do right now.

1. You can complete the online petition at Change.org to let our government leaders know we want the credit made permanent and refundable.  

2. You can contact your Congressional representatives directly to let them know your opinion on the tax credit.  Simply go to Senate.gov and House.gov to find your representatives.  There is a sample letter that you can fill in to send to your Senator or House representative.

Please consult your tax professional for specific help on the adoption tax credit and how it applies to your situation. 

What do you think?  Will the adoption tax credit get extended past 2012?  Are you willing to tell your representative what you think?

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