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Originally Posted By chieffan9

Oooo....much tougher questions. I had to research this a bit. Let me preface this by saying that I am not a tax accountant (or even a practicing accountant at all for that matter), but I do have an accounting degree and certainly understand the basics of how the tax system works. I had to take a look at the IRS and INS websites for some of these things and here is what it appears to me that they are saying regarding your questions. Also, I am assuming an international adoption for all items below!!

Finalization: The way I understand it is that the adoption becomes "final" the moment that the foreign judge says it is. As soon as he signs whatever document he needs to that says that the child is now yours, your adoption is final. That should happen while you are in the foreign country and before you head home with the child. That is why you spend so much time with the judge as he is the one that says the child is now yours. Now, as far as the moment that the child becomes a US citizen, that is somewhat up for debate from what I found, but as long as you have INS approval prior to your trip abroad, (which I understand most everybody does), then your child at the very least becomes a US citizen once you get him/her home. As of February of 2001, you no longer have to wait or apply or "readopt" or anything that may have had to have been done previously. Now, once you get INS approval, once the child is yours (once the adoption is final) and living under your roof, the child becomes a US citizen. I think perhaps some have gotten confused regarding adoption finalization versus US citizenship in the past. I think it's a lot easier now.

It also looks like with all foreign adoptions, if you had adoption expenses in 2001, but the adoption wasn't final until 2002, you can't take the credit on them until 2002 AND you are limited to only $5,000 worth of expenses (since that was the rule in 2001). However, you can ALSO take up to the remaining $10,000 credit that you haven't used yet towards 2002 expenses. In other words, you can take the credit in 2002 for expenses incurred in 2001 (up to a $5,000 limit) AS WELL AS any expenses incurred in 2002, up to a TOTAL limit of $10,000. Example A: 2001 expenses = $7,500, 2002 expenses = $4,500, take total credit of $9,500 ($5,000 for 2001 and $4,500 for 2002). Example B: 2001 expenses = $7,500, 2002 expenses = $7,500, take total credit of $10,000 ($5,000 for 2001 and $5,000 for 2002). Example C: 2001 expenses = $3,500, 2002 expenses = $7,500, take total credit of $10,000, ($3,500 for 2001, $6,500 for 2002). Make sense? Just remember it's a $10,000 credit PER ADOPTION, not per year. Most likely, with an international adoption, no matter when you incurred the expenses, you'll get your $10,000 back.

As for the AGI, it looks like as long as your adoption becomes final in 2002, you can use the new rules (higher AGI threshold) and it really doesn't matter when the expenses occurred.

Hope this helps. Any other questions, I'd be glad to take another look.