A special needs adoption for adoption credit purposes is defined as the adoption of a child who:

1. According to the state could not or should not be returned to the home of the birth parents. 2. Due to a specific factor or condition such as ethnic background, age, membership in a minority group, or sibling group, medical condition, or physical, mental or emotional handicap could not be expected to be adopted unless an adoption credit is provided; and
3. is a resident or citizen of the United States.
• He or she is a citizen or resident of the United States.
• The state determines that the child cannot or should not be returned to his or her parents home
• The state has determined that the child will not be adopted unless assistance is provided to the adoptive parents.

• The Childs ethnic background.
• The Childs age.
• Whether the child is a member of a minority or sibling group.
• Whether the child has a medical condition or physical, mental, or emotional handicap.
  

• Adoption fees.
• Court costs.
• Attorney's fees.
• Traveling expenses including amounts spent for meals and lodging while away from home.
• Re-adoption expense to adopt foreign child.

Limit for employer provided adoption reimbursement for specified adoption expenses incurred and paid is $10,960.

An adoption credit of up to $10,960 is allowed on your tax return for the qualifying costs of adopting a child under the age of 18, or a person who is physically or mentally incapable of self care.
There is a $10,960adoption credit limit on your tax return in the case of foreign adoptions in all cases and the adoption credit is allowed on your tax return only if the adoption is finalized.
Your Adoption Credit for a tax year cannot be more than your tax liability on your tax return for that tax year less:

• any tax credit on your tax return for child and dependent care expenses;
• any tax credit on your tax return for the elderly and disabled; and
• Your tentative alternative minimum tax on your tax return.

Any unused adoption credit may be carried forward to future tax returns for up to five years. 
A special needs adoption for adoption credit purposes is defined as the adoption of a child who:

• according to the state could not or should not be returned to the home of the birth parents;
• due to a specific factor or condition (such as ethnic background, age, membership in a minority group, or sibling group, medical condition, or physical, mental or emotional handicap) could not be expected to be adopted unless an adoption credit is provided; and
• is a resident or citizen of the United States.

Expenses that qualify for the adoption credit are:

• reasonable and necessary adoption fees;
• court costs;
• attorney's fees; and
• other expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child.

If you paid qualifying expenses in 2006 but the adoption was not final at the end of the tax year you may not claim the adoption credit on your 2006 tax return. Qualified expenses paid in one tax year are not taken into account for purposes of the adoption credit until the next tax year, unless the expenses qualifying for the adoption credit are incurred in the tax year the adoption becomes final.
The adoption credit is not allowed for expenses:

• incurred in violation of state or federal law;
• incurred in carrying out any surrogate parenting arrangement;
• incurred in connection with the adoption of a child of the taxpayer's spouse;
• that are paid or reimbursed by a federal, state, or local grant; or
• that are paid or reimbursed under an employer's adoption assistance program.