Thursday, March 11, 2010

Credit for Child Adoption Costs-Code 197 for California State Taxes

Credit for Child Adoption Costs — Code 197

If you have adopted a child, you can claim a credit upto 50% of the adoption cost. You can claim this credit on your California State tax return (Form 540, Form 540 NR(long or short)) with credit code 197.

Your allowable credit is $2500 per childern and you can carry over the excess credit to future years.

There are certain rules to claim this credit on your california return and they are as below.
For the year in which an adoption decree or an order of adoption is entered (e.g., adoption is final), claim a credit for 50% of the cost of adopting a child who was both:
  • A citizen or legal resident of the United States.
  • In the custody of a California public agency or a California political subdivision.
Treat a prior unsuccessful attempt to adopt a child (even when the costs were incurred in a prior year) and a later successful adoption of a different child as one effort when computing the cost of adopting the child.

Include the following costs if directly related to the adoption process:
  • Fees for Department of Social Services or a licensed adoption agency. 
  • Medical expenses not reimbursed by insurance.
  • Travel expenses for the adoptive family.
  • This credit does not apply when a child is adopted from another country or another state, or was not in the custody of a California public agency or a California political subdivision.
  • Any deduction for the expenses used to claim this credit must be reduced by the amount of the child adoption costs credit claimed.
Use same calculation shown bleow for each adoption. The maximum credit is limited to $2,500 per minor child.

1. Enter qualifying costs for the child . . . . . . . . . 1 _______
2. Credit percentage — 50%  . . . . . . . . . . . . . . . 2 _______x .50
3. Credit amount. Multiply line 1 by line 2.
     Do not enter more than $2,500 . . . . . . . . . . . 3 _______

Your allowable credit is limited to $2,500 for 2009. Carry over the excess credit to future years until the credit is used.
All the information are taken from California Government Website( Please refer the instruction before claiming this credit on your state tax return.


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