The IRS allows you to receive an extra credit when you incur any adoption expenses you have occurred. Usually you will receive this credit in the following year after your expenses. For example, if you adoption process is finalized in September of 2007 then you can claim the credit when you file your taxes in 2008. The adoption credit can only reduce the amount of taxes that you owe and it cannot exceed that value. If your credit does exceed you're the amount you owe in taxes you are allowed to carry the remaining credit forward to the following year. You can keep using this carry forward process for up to 5 years.
Qualified adoption expenses are generally any expenses occurred while trying to adopt a child. This can include lawyer fees, traveling fees, any costs associated with going to court, and any adoption fees. The total of your qualifying adoption expenses is all of the aforementioned fees minus any amounts giving to you by your employer and/or government agency. Note: You cannot claim this credit if you are adopting a spouse's child.
To receive an adoption credit, you need to file a Form 8839. There is a maximum amount you can receive for an adoption credit. Theses values are listed below:
For 2008 tax season: Smaller of your qualified adoption expenses and $11,650.
For 2007 tax season: Smaller of your qualified adoption expenses and $11,390.
For 2006 tax season: Smaller of your qualified adoption expenses and $10,960.
If your adjusted gross income is above the amounts below, you will not qualify for this credit:
For 2007 tax season: $210,820
For 2006 tax season: $204,410
There is also a phase out range for receiving the adoption credit:
For 2007 tax season: $170,820 - $210,820
For 2006 tax season: $164,410 - $204,410