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For both of the adoption expense tax breaks (the exclusion of employer-reimbursed expenses and the tax credit), adoption expenses are defined in the same way. They include reasonable and necessary:
The child must be under 18 years old, or physically or mentally incapable of self-care. You can't deduct expenses for adoptions that violate state law, that involve surrogate parent arrangements, that involve adopting your spouse's child, or that are allowed as a credit or deduction under any other federal income tax rule (for example, medical expenses that can be claimed as itemized deductions are not adoption expenses).
If eligible, you can take advantage of both the employer-provided benefits and the adoption tax credit, but you can't use the same expenses to qualify for two different tax breaks.
For 2011, $13,360 is also allowed as an adoption credit and as an exclusion from income in the case of a special needs child even if there are no qualified adoption expenses.
Special needs children. To be considered a special needs child, a state must determine that the child cannot or should not live with his or her parents, and that unless financial assistance is provided, it's unlikely that the child will be adopted because of factors such as the child's ethnic or minority background, the child's age, the fact that the child is a member of a sibling group, or the child's medical condition or mental or physical handicap.
The special needs foreign child adoption provisions expired at the end of 2001. However, the provisions for adoption of U.S. special needs children continues.