how does this work? I thought you can take it for the full amount, even if your qualifying expenses don't add up to it, if your client is considered special needs.

yes, if the child is deemed a special needs child you get the full credit regardless if you spent the money.  Note that it is NOT a refundable credit.  It can't not exceed your tax liabilbity.  if the child is a special needs child and you have a tax liability of at least $11,390 then you can use the entire amount and your balance due will be zero.

child  also  would qualify  for  medical access and   get all the  early intervention services available  through the school district and privately, earlier  the better. 

and just want to make sure. The definition of special needs is an older child, a child which is part of a sibling group, a child who is part of a minority group, a child that has a disability right?

An eligible child is a child with special needs if all three of the following apply.

1.  He or she was a citizen or resident of the United States (including U.S. possessions) at the time the adoption process began.

2.  A state (including the District of Columbia) has determined that the child cannot or should not be returned to his or her parents' home.

3.  The state has determined that the child will not be adopted unless assistance is provided to the adoptive parents. Factors used by states to make this determination include:
    a The child's ethnic background
    b The child's age
    c Whether the child is a member of a minority or sibling group, and
    d Whether the child has a medical condition or a physical, mental, or emotional handicap.

one more question. what should she be classified as on my tax return. I am a pre-adoptive home. the adoption has not been finalized yet. is she my foster, my adoptive or something else?

You can not take her as an adopted child until it is finalized and that would be for special needs as well.

I'd use "fosterchild"

so does that mean I can't take the adoption credit b/c I thought that if it's a domestic adoption, you can take the credit before it's finalized.
 I'm soooooooooooooooooooooooo confused.
 

long week - lol And a Client is actually in the process of adopting a foreign child and I didn't recall that your child is a domestic child.

should have posted more - sorry my mistake.  Adoption credit is rather clumsy.

The year in which a taxpayer can take the adoption credit depends on whether the eligible child is a citizen or resident of the United States (including U.S. possessions) at the time the adoption effort begins. If the eligible child is a U.S. citizen or resident, the taxpayer can take the credit even if the adoption never becomes final. For children who are U.S. citizens or residents, the following rules apply in determining when the adoption credit is taken:


(1) If the taxpayer pays qualifying expenses in any year before the year the adoption becomes final, the credit is taken in the year after the year of the payment (this is the one-year delay rule).
(2) If the taxpayer pays qualifying expenses in the year the adoption becomes final, the credit is taken in the year the adoption becomes final.
(3) If the taxpayer pays qualifying expenses in any year after the year the adoption becomes final, the credit is taken in the year of the payment.

EXAMPLE: In 2005, Jane and Sam Smith, a married couple, pay $6,000 of qualified adoption expenses to adopt Brad. In 2006, they pay another $7,000 of qualified adoption expenses and the adoption becomes final in 2006. Jane and Sam may not claim any qualified adoption expenses as a credit in 2005 because of the one-year delay rule. For 2006, Jane and Sam have modified AGI of $174,410. Their adoption credit is subject to the dollar and AGI limitations. A maximum amount of $10,960 of expenses is eligible for the credit. This amount is then reduced by 25 percent [($174,410 - $164,410)/$40,000]. Thus, Jane and Sam's credit for the year is $8,220 [$10,960 - ($10,960 x 25%)].

Going through the process (forms) see the instruction for form 8839 (adoption credit). http://www.irs.gov/pub/irs-pdf/i8839.pdf
see page 4, top of col 2 "Special Needs adoption. If you adopted a child with special needs and the adoption became final in 2007 enter $11,390..."


Best I can see for you and a domestic child is that you can use the 2006 expenses paid as the basis for the credit (which should ultimately be the credit).  thats the one year delay rule.

hope this clears up.