J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

3.6 Adoption Benefits

If your employer pays or reimburses you in 2012 for qualifying adoption expenses under a written, nondiscriminatory plan, up to $12,650 per qualifying child may be tax free. Employer-provided adoption assistance may be for any child under age 18, or a person physically or mentally incapable of self-care. The exclusion applies to adoption fees, attorney fees, court costs, travel expenses, and other expenses directly related to a legal adoption. Expenses for adopting your spouse’s child and the costs of a surrogate-parenting arrangement do not qualify. If you have other qualifying adoption expenses, you may also be able to claim a tax credit up to a separate $12,650 limit; both the exclusion and the credit may be claimed for the same adoption if they are not for the same expenses. The exclusion and the credit are subject to similar limitations, including a phaseout based on income. See Chapter 25 for a full discussion of the credit.

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Filing Tip

Claiming Credit and Exclusion

If you paid adoption expenses in 2012 that were not reimbursed by your employer, and the adoption was final in 2012, you may be able to claim the adoption credit; see Chapter 25.

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The full $12,650 exclusion limit is available for the adoption of a “special needs” child even if actual adoption expenses are less than $12,650. A “special needs” designation ...