All Things Tax

All Things Tax

Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.

Posts: 2
Registered: ‎05-17-2017
Accepted Solution

Special Needs Adoption Credit 2016

We adopted an eligible Special Needs child in 2016. The credit requires it be used to offset taxes. Our income is so low that normally we are in the Negative Tax Bracket.

The Special Needs Tax Credit can be used over a Five Year Period.


This is what I need help with:

1. I have some Capital Gain Losses I have been carrying over to cover some Capital Gains. Do I have to use the Capital Gain Losses? If I don't use the Loss in order to use the Special Needs Adoption Credit will I be able to turn the Capital Gains Loss back on after using up the Special Needs Adoption Credit?


2. The income I receive I had set up with Zero Exemptions. I received the income as a lump-sum check every December so I figured it was better to cover any taxes that might be needed to be paid from the refund. If there were no taxes owed then I would receive the full amount taken out from the payment. I requested the Exemptions be changed to the max allowable in hopes of having to pay taxes and thus be able to use the Special Needs Adoption Credit. Does this make sense and will it help me to be able to use the Special Needs Adoption Credit in the next four years?


3. Can anyone suggest anything else we can do? How about converting a Regular IRA to a Roth IRA to generate some tax liability?


I hope this makes sense and there are some suggestion to help us.

Trusted Council Member
Posts: 6,191
Registered: ‎02-23-2016

Re: Special Needs Adoption Credit 2016

Hi LakeGuyNE,


Welcome to the H&R Block community.


You're correct that the adoption credit can only be used to reduce tax.  If something changes in a future year, an increase in income or something making you ineligible for another credit for instance, then you may be able to use some of the adoption credit.


If you were to covert a traditional IRA or other qualifying retirement account to e Roth account that could result in significant tax liability depending on how much you have in the original account because all pre-tax funds in the original account will be taxable for the federal income tax since Roth accounts are funded with pre-tax dollars.  The additional income from a conversion could put you into a higher tax bracket and make you ineligible for the earned income credit and/or the child tax credit depending on how high your income is including the converted amount.


The $3,000 capital loss deduction on the 1040 reduces your taxable income but it does not reduce your tax dollar for dollar and therefore will not affect your tax liability a whole lot.  The more income you have the less effect it will have since it's limited to $3,000 per year.  I would keep deducting that as you normally do.



Senior Tax Advisor (Tampa, FL)

Posts: 2
Registered: ‎05-17-2017

Re: Special Needs Adoption Credit 2016

Thank you for the detailed reply.

I liked the way the Credit was before. We adopted another Special Needs child a few years ago and we received the total credit in our refund. It was quite a shock to see the difference. We understand the difference, but we had not expected it.


Once again thank you for your assistance and if you think of anything else please let me know.


Have a GREAT Summer.