When is a child adopted, in the eyes of the IRS?
Q: We adopted a newborn girl and brought her home last August. The adoption process became official in February. Can we claim her on our 2006 tax return? Also, we applied for a Social Security number, but it hasn't arrived and the April 17 tax deadline is drawing near. Can we file our tax return without this number?
D.K., Glenview, Ill.
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A: There are two broad rules for the qualification of a dependent, says Mac Claxton, a certified public accountant in Upper Marlboro, Md. She either has to be a "qualifying child" or a "qualifying relative."
The qualifying child test probably won't fly because it contains a clause that requires that the girl be "related" to the taxpayer. Since the adoption wasn't final in 2006, she was not related and fails that test.
But she may well be a "qualifying relative," since the relationship test is broader, and she became a member of your household essentially for life in 2006, Mr. Claxton says.
In addition, you can write on the tax return that her Social Security number has been applied for (and maybe pencil in her birth date to let the IRS know she's new to this tax world).
Q: I purchased a townhouse about two years ago. My son now wants to buy half of the property by paying me half of the amount that I paid for the down payment when I made the purchase. He would also pay me, up front, half of all house payments, property taxes, and association fees I've paid since I've owned the property. After he pays all of the above, can I add his name to the title? He will continue to pay half of all expenses for as long as we own the home.
C.F., via e-mail
A: It all seems reasonable enough to David Hultstrom, a certified financial
planner in Woodstock, Ga. It will help if the value of the property is relatively unchanged from when you bought it; otherwise, you might have to make an upward or downward adjustment to the price.
Does your son live in the townhouse with you? If not, to keep everything above board, Mr. Hultstrom says, you'll owe him rent at half the market rate. If he doesn't live there and doesn't charge you rent, he essentially is making a gift to you. And if the value of that unpaid rent is more than $12,000 per year, a gift tax return would need to be filed with the IRS.