Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.
Q. We're planning to adopt a child this year and I understand that we can receive up to a $5,000 tax credit for adoption. How does this work?
A.You may claim a nonrefundable credit in the year the adoption is finalized of up to $5,000 for qualified adoption expenses for each eligible child by filing Form 8839. The limit is $6,000 for each eligible child with special needs. Each dollar of credit offsets an equal amount of your tax liability. Recent legislation allows this credit to reduce your regular tax liability down to zero. Any unused credit is carried forward for five years. The credit is phased out for adopting parents who have modified adjusted gross income above $75,000 and completely eliminated when modified adjusted gross income is $115,000 or more. Qualified expenses include reasonable and necessary legal fees, court costs and other expenses necessary to adopt an eligible child. There are special rules for adoption of children who are not citizens of the United States. See IRS Publication 968 for more information. Remember, Maryland allows as an "Other subtraction" in arriving at Maryland taxable income up to $2,000 in adoption expenses. The limit is $3,000 for the adoption of children with special needs.
Lambert G. Boyce Jr. CPA, CFP, Clifton Gunderson, LLC, Timonium
The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.
To ask a tax question, call Sundial, The Sun's telephone information service, at 410-783-1800. Call 410-268-7736 in Anne Arundel County, 410-836-5028 in Harford County, 410-848-0338 in Carroll County. Using a touch-tone phone, punch in the four-digit code 6225 after the greeting. You can also submit questions by e-mail through The Sun's Web site, www.sunspot.net. Click on Business.
Selected questions will be answered in the Business section. No questions will be answered personally.