In these cases, the new parents are allowed to claim the maximum credit amount even if their actual expenses did not reach that amount. For example, your special needs adoption process was finalized in 2008. It took two years, over which time you spent $10,000.

On your 2008 return, you can claim an adoption credit of $11,650 even though your actual expenses fell $1,650 short.

Accounting for employer assistance
In addition to the tax credit, adoptive parents who get financial help from their companies may be able to avoid paying tax on up to $11,650 of that employee benefit.

You may claim this income exclusion along with the tax credit for the same adoption, basically doubling your adoption tax break.

The only limitation: You cannot use both the exclusion amount and credit to write off the same expense. For example, if your company reimburses your adoption travel costs of $11,650, you cannot use these expenses as part of your credit filing. But all other eligible costs up to that amount may be counted toward the credit.

Other credit considerations
While you can adopt a U.S.- or foreign-born child, in most cases the youngster must be younger than 18. The age limit is waived if the child is physically or mentally challenged.

You cannot count expenses related to surrogate parents or the adoption of your spouse's child in figuring your allowable credit.

Married couples generally must file a joint return to take the adoption credit or exclusion. If you file as married filing separately, the credit is available only if you meet special requirements.

The credit amount is per child, not per year. So if the adoption of your son takes four years and costs $17,000, you will be able claim only $11,650 of your expenses during that whole time. You can carry forward any unused credit amounts for the adoption for up to five years.

If the adoption is not completed, you still can claim the credit for your expenses in the unsuccessful adoption attempt.

The credit begins phasing out if your modified adjusted gross income exceeds $174,730. You can't claim the credit at all if you make more than $214,730. The same limits apply to either single adoptive parents or the total income of married couples filing jointly.

Claim your adoption expenses, as well as any adoption-related benefits you received from your employer and can exclude from your income (also up to the $11,650 limit), on Form 8839, Qualified Adoption Expenses. Also, the adoption credit can no longer be claimed on the slightly shorter Form 1040A. You now must attach Form 8839 to the long Form 1040.

Freelance writer Kay Bell writes Bankrate's tax stories from her Austin, Texas, home. She also writes two tax blogs, Eye on the IRS for Bankrate and Don't Mess With Taxes, and is the author of the book "The Truth About Paying Fewer Taxes."