VITA Advanced Certification Practice Test

Gifts and inheritances are generally not taxable to the taxpayer who receives them. According to U.S. tax law, the recipient of a gift or inheritance does not owe taxes on the value of the gift or inheritance received. This means that if you receive money or property as a gift from an individual or as a bequest from an estate, you are typically not liable for income tax on that amount.

In contrast, salary and wages are considered taxable income and must be reported on a tax return. Interest and dividends also represent taxable income, as they are typically earned on investments, and rental income is recorded as taxable income derived from properties that generate revenue. Understanding the treatment of gifts and inheritances as non-taxable is crucial for taxpayers when managing their finances and planning for tax liabilities.