Tax Benefits for Adoption

There are two important tax breaks for adoptive parents in 2005: an exclusion of up to $10,630 (indexed annually for inflation) paid under an employee benefit plan that pays for adoption expenses, and a tax credit for up to $10,630 (also indexed for inflation) for expenses that were not reimbursed by your employer. The $10,630 amount also applies for adoptions of children who are U.S. citizens or residents, and are determined to be special needs children by a state.

However, both tax breaks begin to be phased out for those with adjusted gross income (AGI) over $159,450 in 2005. If your AGI is $199,450 or more, you can't claim any tax benefits for adoptions.

For more information, check out the following:

• qualifying expenses for adoption benefits
• dollar limits on adoption expenses
• claiming the adoption exclusion or credit