2021 ProSeries Adoption Credit Calculation

[FrankK]

Taxpayer adopted a child in 2021. Child was born in January 2003, so child reached age 18 in 2021.Adoption was final in June 2021.

When I initially prepared the return, ProSeries did not allow an adoption credit.

Some time after the return was submitted, I received a ProSeries update that allowed the adoption credit. I believe this is incorrect, because the adoption was final AFTER the child turned 18.  ProSeries only asks about the YEAR the adoption was final, not the DATE the adoption was final.  It seems to me that ProSeries should ask for the date adoption was final, then compare it to the child's date of birth to determine eligibility based on age.  

Anyone else encounter this?  The current 2022 version of ProSeries has this same worksheet that only asks you to enter the year the adoption became final on the Adoptive Child Worksheet.

[BobKamman]

Where do you find that the adoption needs to be final before the child reaches age 18?

I read Section 23 to require only that the expenses be incurred before the child reaches age 18. And, that could include expenses incurred in 2020.  

When were the adoption proceedings started?  Did Covid delay them in 2020?

[FrankK]

Page 1 of IRS Instructions for Form 8839: "An eligible child is: Any child under age 18. If the child turned 18 during the year, the child is an eligible child for the part of the year he or she was under age 18."

U.S. Master Tax: "Eligible Child and Special Needs Child An eligible child for the adoption credit is an individual who has not attained the age of 18 as of the time of the adoption, or who is physically or mentally incapable of caring for himself or herself."

Quickfinder: “If the child turns 18 before the adoption is finalized, only expenses incurred before the child turned 18 will be eligible for the credit. 

In this particular case, all of the adoption expenses were incurred after the child's 18th birthday.  No COVID delay.

[TaxGuyBill]

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@FrankK wrote:

In this particular case, all of the adoption expenses were incurred after the child's 18th birthday.  No COVID delay.

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Maybe I'm misunderstanding your situation, but if the expenses don't qualify, why are you entering those expenses in ProSeries?

[BobKamman]

Quickfinder: “If the child turns 18 before the adoption is finalized, only expenses incurred before the child turned 18 will be eligible for the credit. 

Exactly.  The age of the child when adopted doesn't matter, because you're not claiming the child.  What matters is the age of the child when the expenses were incurred.  The child could have turned 18 in 2020 and if the adoption was not final until 2021, the expenses incurred before his birthday in 2020 would still qualify on the 2021 return.   

You criticized the software in your initial post for possibly allowing a credit for expenses that don't qualify.  However, asking for the child's date of birth would not make the program any more accurate.  The preparer must still know the law.  

[FrankK]

In response to your first question (Maybe I'm misunderstanding your situation, but if the expenses don't qualify, why are you entering those expenses in ProSeries?), I am not one of those "lucky" people whose clients provide 100% of required data before I start to work on their return. In this case, the taxpayers stated that they incurred adoption expenses (provided list, without dates or receipts) and that the adoption was final in 2021.  It wasn't until the last of the information was provided that I was able to determine that no credit was allowable. The release of the software that I used correctly calculated that no credit was allowable. Therefore, no need to remove information already entered.

A similar example: Are you saying that you only enter the first $10K of SALT from W-2s, even though the actual amount may be greater?  Or that you only enter other data up to the threshold amounts (e.g. mortgage interest) instead of using the deductible mortgage interest worksheet?  What if our friends in Congress retroactively change the law after you enter the "limited" data?

Regarding your second post, you are correct in that the software would need to know the date of birth and the date the adoption was final, along with either dates of expenses or a method for the preparer to specify that all or a specified amount of expenses were incurred before the child reached age 18.

Finally, while there is no more deduction for dependents (for now), the child's information was still entered in the dependent section of the information worksheet because the child had qualified education expenses.

[TaxGuyBill]

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@FrankK wrote:

 The release of the software that I used correctly calculated that no credit was allowable.

A similar example: Are you saying that you only enter the first $10K of SALT from W-2s, even though the actual amount may be greater?  Or that you only enter other data up to the threshold amounts (e.g. mortgage interest) instead of using the deductible mortgage interest worksheet?  What if our friends in Congress retroactively change the law after you enter the "limited" data?

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If the original release of the software told you that no credit was allowed, that was an error in the software, and they appeared to have fixed that.  You seem to have made a mistake by not finding out why it wasn't giving the credit.

I ask the taxpayers for the amounts during the proper time period, which is usually the tax year (but some things like this Adoption credit and the Dependent Care credit stop when a person reaches a certain age).  I would not enter non-qualifying expenses (such as income or expenses from a prior tax year or the next tax year). I also wouldn't enter non-qualifying expenses such as mortgage interest that was for non-qualifying purposes. Once I enter the correct amounts, then I let the software do the math for any limitations.

[BobKamman]

Jumping to conclusions, I suspect this is an adult adoption, which is available in many states but not what Congress intended to subsidize by enacting Section 23.  I would have at least ruled that out before opening a Form 8839.  But, different strokes for different folks. 

https://www.webmd.com/parenting/what-is-adult-adoption