Adoption credit carryforward

[JJStephens]

It took many years but a client was finally able to adopt two kids from Haiti several years ago. By then, the girls were 15 and 16 years old.

Each year we've carried forward the unused portion of the allowable credit on Form 8839. The girls have completed their schooling so no longer qualify as dependents. Can the credit carry forward even though they're no longer dependents?

I can't find anything in the 8839 instructions. Any guidance will be deeply appreciated!

[Lee B]

 

IRS Tax Tip 2022-09

"This credit is non-refundable. This means the amount of the credit is limited to the taxpayer's taxes due for 2021. Any credit leftover from their owed 2021 taxes can be carried forward for up to five years."

[JJStephens]

Yup. That part I was aware of--though I do appreciate the reminder!

The credit was initially taken in 2017 so 2022 is the fifth (and final) year for the carry forward. The credit exceeded TP's tax liability each of the previous four years, hence the carry forward to 2022. There will be about $12k of unused credit that will be lost due to the five year limit on the carry forward.

I just spoke with support. After 40 minutes of mumbo jumbo the guy tells me I should check the disabled child box (he said that cleared the error for him!). I told him the children are not disabled and checking it would be inconsistent with prior filings and would also constitute fraud. He replied, "Oh yeah. I see your point." Then he suggested I call the IRS to see if they have a suggestion what I should try next. I told him it's a software issue, not a tax law issue. Again, "I see your point. But it's worth a try." Side note--tech support just aint what it used to be.

Finding the right combination of entries on the adoption credit has always been a riddle wrapped in a mystery inside an enigma for me. The carry forward just complicates it a bit more.

My original question was whether the child(ren) on whom the credit was originally taken must still be a dependent for the carry forward to be valid. That still seems to be at the heart of the problem.

[JJStephens]

I spent considerable time on the phone with Drake support. Turns out the credit does carry forward, regardless of the adoptee's dependent status. However, if the adoptee was born prior to 2005, the return must be paper filed. That little tidbit was not in the IRS instructions or in anything published by Drake for public consumption. She found it in some internal Drake documentation. I doubt I'll ever need to know that again...but if it do, now I know!