Today TaxMama® hears from Hilde in the TaxQuips Forum with this question. “My son and daughter-in-law just adopted a special needs child from China. We know that there was a tax credit avail last year. Is there a tax credit for 2012? If yes, how much is the credit for? Some of the expenses were paid in 2011 and the remainder (about $10,000) was paid earlier this month. Can the money paid in 2011 for the adoption in 2012 be used when claiming the credit (if there is one, of course)?”

Ask TaxMama

 Hi Hilde,

Congratulations on the wonderful grandbaby!

Yes, there is still an adoption credit in 2012. However, it appears to be limited to $12,250 per child – and is non-refundable. In other words, it will reduce their tax liability to zero. But if their taxes are less than $12,250, they won’t get a refund for the difference.

If the child had been an American child, they could have used the refundable adoption provisions on their 2011 tax return. But because the child is not an American, they must wait until the adoption is finalized to claim the credit – in 2012. Alas.

However, all the expenses they incurred, in 2011 and 2012, can be used.

Is there still an extra provision for special needs children? Yes, you can claim the full amount of $12,250 without having to have spent that much. There is a phase-out of the credit if their income is too high – see the details in the post.

IRS has nothing published about the rules for 2012. And the rules may yet change before the year is out. The most recent information is in IRS Revenue Procedure 2011-52. Of course, it may have changed since then.

And remember, you can find answers to all kinds of questions about adoptions and other tax issues, free. Where? Where else? At

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