Adoption Expenses

If you paid qualifying adoption expenses during 2006, you may qualify for a credit of up to $10,960 for each adopted child. The credit is reduced if your income is over $164,410, and eliminated if your income is $204,410 or more. (If you adopt a child with special needs, the credit  is $10,960 even if the adoption cost less.)

A related tax benefit, if you are within the income guidelines, is that you can exclude employer-provided adoption benefits from your income, within the above dollar limitations. These benefits are reported to you in box 13 of the Form W-2 given to you by your employer, and marked with the code "T".

For expenses to qualify for either tax benefit, the adopted child must be under age 18 or disabled. Expenses for adopting your spouse's child are ineligible. Expenses qualify for the credit or exclusion if paid in 2006 and the adoption was final in or before 2006. Click here for a special rule for foreign adoptions if you had employer-provided adoption benefits.

You cannot take the adoption credit or exclude adoption benefits if you are married filing a separate return, unless you meet all these requirements:

• You lived apart from your spouse during the last 6 months of 2006.
• Your adopted child lived in your home more than half of 2006
• You provided over half of the cost of keeping up your home.

Use Form 8839 (included in TaxCut) to report your adoption expenses and claim the adoption credit or exclusion.