Adoption Assistance Program
There is some good news for taxpayers who adopt children. Per IRS, starting in 2007, "the taxpayer may be able to exclude up to $11,390 from his gross income for qualified adoption expenses paid or incurred by his employer under a qualified adoption assistance program in connection with the taxpayer’s adoption of an eligible child."

However, according to the IRS, this "income exclusion starts to phase out if the taxpayer’s modified adjusted gross income is $170,820 or more and is completely phased out if the taxpayer’s modified adjusted gross income is $210,820 or more."

Adoption Credit
Per IRS, for years 2007 and thereafter, the credit allowed for an adoption of a child with special needs will be $11,390 and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $11,390.

As with all Tax Credits, this credit also begins "to phase out if you have modified adjusted gross income of $170,820 or more and is completely phased out if you have modified adjusted gross income of $210,820 or more."

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