LO.4 Ann and Bill were on the list of a local adoption agency for several years, seeking to adopt a child. Finally, in 2011, good news comes their way, and an adoption seems imminent.

They pay qualified adoption expenses of $4,000 in 2011 and $11,000 in 2012. Assume that the adoption becomes final in 2012. Ann and Bill always file a joint income tax return.

a. Determine the amount of the adoption expenses credit available to Ann and Bill assuming that their combined annual income is $100,000. What year(s) will they benefit from the credit?

b. Assuming that Ann and Bill’s modified AGI in 2011 and 2012 is $200,000, calculate the amount of the adoption expenses credit.