In relationship to the tax credit, who specifies that the child you are adopting is special needs? Do you need a letter from your agency stating that this is a special needs child? Or is your child automatically special needs, say if you adopted African American? Anyone know? Thanks!

[maimms]

A child is considered special needs if he/she is hard to adopt due to any of the following:
ethnic background
age of child (generally over 7)
a member of a minority or sibling group
child has a medical condition, physical, mental or emotional handicap

Hope this helps.....

Check out some of the adoption resources websites, too.

[Peggy]

Your agency or the state would also tell you that your child is considered special needs, and for what reason(s).

[mckenna]

in missouri, any child adopted from the foster care system regardless of age, race, ect. is considered special needs. it is all dependant on the state.

[mj77]

Oregon is the same way, children adopted through the state are special needs. Also Children adopted over 12 months old are "special needs".

[HappyMomAnna]

I am not completely sure if you are asking about the 'special needs' subsidy qualifications or the Aoption Tax credit OR are you asking about the ability to claim in additional years following and adoption a special tax credit.

Each state has thier own criteria for determining if a child being placed is one who will qualify for the 'special needs' subsidies.

The federal tax credit for achiving an adoption is a one time credit to help cover any costs that were not refunded to you by the state. Most often families adopting through the state actually have few costs and are not likely to qualify for very much of the Adoption Tax credit.

Children who are classified as disabled will often ualify for the additional dependant tax credit and this requires that the Sate has evealuated the child and determined there are educational or medical needs. For example when my bio son had a serious accident the public school assigned a special teacher to come to our home--he was then classified for that year as disabled and our family recieved the additionl tax deduction for a disabled child. There was a form mailed to us like our W-2 from the state which we had to attache to our taxes.

Now we have two 'special needs' children who recieve a subsidy--but neither of them were found to be 'disabled' in 2003 so we do not qualify for any additional tax credits of any kind. However our son age 2 has now been evaluated by the State and is enrolled into the early intervention services program which should mean that for 2004 we may qualify for tax credits because our child is now in the system and recieveing services for his disablty.

[mckenna]

if you are talking about the 10,000+ tax credit available adoptions completed in the year 2003. families who have completed an adoption of a special needs child regardless of how much they spent for the adoption, are eligable. i did not spend one dime on my son's adoption but since he is considered special needs, i am eligable for the tax credit. a tax credit is not the same as a tax deduction. i cannot get back more than i payed in taxes for the year of 2003 but the credit can be utilized for up to five years.

[HappyMomAnna]

McKenna--I am going crazy--once I think I have this figured out then I hear something different! YIKES! We are picking up our taxes from our accountants this week and they laughed at us when we ased if we qualified for the adoption tax credit????

I am going to get in touch with the IRS because what you said here is what I thought until we saw our accountants and personally I want any tax break I can get!

Thanks and hopefully I and others can get this figured out before we file.

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The IRS Web site at: http://www.irs.gov/taxtopics/tc607.html

Topic 607 - Adoption Credit
You may be able to take a tax credit of up to $10,160 for qualifying expenses paid to adopt an eligible child (including a child with special needs). The adoption credit is an amount subtracted from your tax liability. Although the credit generally is allowed for the year following the year in which the expenses are paid, a taxpayer who paid qualifying expenses in 2003 for an adoption which became final in 2003, may be eligible to claim the credit on the 2003 return [i.e, The adoption credit is not available for any reimbursed expense.]. However, in addition to the credit, up to $10,160 paid or reimbursed through the year 2003 by your employer for qualifying adoption expenses may be excludable from your gross income.

For either the credit or the exclusion, qualifying expenses include reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging while away from home), and other expenses directly related to and for which the principal purpose is the legal adoption of an eligible child. An eligible child must be under 18 years old, or be physically or mentally incapable of caring for himself or herself. The adoption credit or exclusion cannot be taken for a child who is not a United States citizen or resident unless the adoption becomes final. An eligible child is a child with special needs if he or she is a United States citizen or resident and a state determines that the child cannot or should not be returned to his or her parent's home and probably will not be adopted unless assistance is provided.

The credit and exclusion for qualifying adoption expenses are each subject to a dollar limit and an income limit.

Under the dollar limit the amount of your adoption credit or exclusion is limited to $10,160 for each effort to adopt an eligible child. If you can take both a credit and an exclusion, this dollar amount applies separately to each. For example, if you paid $9,000 in qualifying adoption expenses for a final adoption, and your employer paid $4,000 of additional qualifying adoption expenses, you may be able to claim a credit of up to $9,000 and also exclude up to $4,000.

The $10,160 amount is the maximum amount of qualifying expenses taken into account over all taxable years. Therefore, it must be reduced by the amount of qualifying expenses taken into account in previous years for the same adoption effort, including an unsuccessful effort to adopt a different child.

The income limit on the adoption credit or exclusion is based on your modified adjusted gross income (modified AGI). If your modified AGI is $152,390 or less, the income limit will not affect your credit or exclusion. If your modified AGI is more than $152,390, your credit or exclusion will be reduced. If your modified AGI is $192,390 or more, your credit or exclusion will be eliminated.

Generally, if you are married, you must file a joint return to take the adoption credit or exclusion. If your filing status is married filing separately, you can take the credit or exclusion only if you meet special requirements.

To take the credit or exclusion, complete Form 8839 (PDF), Qualified Adoption Expenses. You will attach Form 8839 to Form 1040 (PDF) or Form 1040A (PDF) and report the credit on line 50 of Form 1040 or line 34 of Form 1040A. Additional information on the adoption credit and exclusion can be found in Publication 968, Tax Benefits for Adoption. Employers should order Publication 968 to obtain information on setting up an adoption assistance program and information on how to report this benefit.