The IRS definition of a "dependent" has changed and applies to your 2005 tax returns. The new rules benefit adoptive and foster parents, according to tax expert William Perez, who says:

"The child needs to live with you for more than half the year, and must not have provided more than half of his or her own financial support. (That is, a child star's mom cannot claim her as a dependent, because she provides for more than half of her financial support, or at least I would think so.)

The change from parents providing over half the support (old rules) to the child not providing over half of the support (new rules) will make it easier for children in families receiving various types of financial aid, grants, and reimbursements to qualify as dependents under the new rules.

The new rules make it much easier for adoptive and foster parents (although, they seem to be making life miserable for everyone else). The dependent cannot provide more than half of his or her own financial support. And that basically means they cannot have significant income. Gifts/grants/financial aid are not income. Even if the subsidies count as support, this subsidy is not provided by the child, but by an agency. So the child is still not providing her own financial support.

The new rules make it hard for parents of college students, who might have full or part time jobs. Under the old rules, dependents in college could earn any amount of money and still be a dependent. Not so under the new rules.

Disclaimer: Under the provisions of Treasury Circular 230, written advice cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer for following the advice."

This year, the same as last, the adoption tax credit is $10,630.

To learn more, visit http://tax-credit.adoption.com.

For more information on claiming a dependent child, see:

Claiming Dependents, from William Perez, About Tax Planning
Definition of a "Qualifying Child", from the IRS