The Wards couldn't believe the news when their tax preparer called to tell them they're getting a $54,000 refund this year.What do you think? There's certainly nothing wrong with taking a legal tax credit. And there's no suggestion that this family is in it for the tax break. But I keep hearing this line from an article about why Kyrgyzstan officials are reluctant to lift their freeze on international adoption: "Some people also assume that since American families that adopt receive certain financial benefits and tax breaks, they must be doing it less out of the goodness of their hearts and rather to supplement their income."
Thelma Ward was speechless. She had to hand the phone to her husband so she could dance around the living room floor in shock.
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So what's bringing this windfall? The federal adoption tax credit.
In the past few years, the Wards have expanded their already big clan of seven children by adopting five new kids. For each of these adopted children, they are eligible for a one-time tax credit of up to $13,170.
The credit has been around since 1997, but this tax season it is refundable for the first time -- which is the tax equivalent of hitting the jackpot.
A refundable tax credit lets you get the cash even if you owe no taxes. A non-refundable credit just offsets any taxes you owe, and then rolls anything remaining to the next tax year.
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"When this was first coming through the tax reform legislation, we just kept looking at it going, 'Wow, this is really, really significant for people adopting,'" said Kathy Pickering, executive director of The Tax Institute at H&R Block. "It's not a large population who can claim it, but for those who do, it can really change their lives."
A typical private adoption runs about $30,000, so the credit was intended to help families by reimbursing expenses, such as court fees. But the tax law allows parents who adopt "special needs" children to receive the entire credit even if they had no expenses.
All of the Wards' foster children qualified as special needs, so Thelma was able to claim the full credit even though there were no adoption expenses. This is not unusual for foster children; about 80% of these kids are considered to have "special needs."
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