Are gifts and inheritances included in gross income?

Gifts and inheritances are generally not included in gross income according to the IRS rules. When someone receives a gift, it is not considered taxable income to the recipient; thus, they do not need to report it on their tax return. This principle applies to most types of gifts, whether they are cash or property, as long as the giver has not imposed conditions that would require repayment or services in return.

Similarly, inheritances are also excluded from taxable income. When an individual inherits property or money, the value of the inheritance is not regarded as income for tax purposes. Instead, the inheritor may face tax implications related to capital gains if they sell the inherited property later, but the initial receipt of the inheritance itself is not taxable.

In contrast, the other choices suggest various circumstances under which gifts and inheritances might be taxable, but these scenarios do not align with the general tax treatment established by the IRS. For example, some forms of gifts that exceed annual exclusion limits may impose gift tax obligations on the giver, but this does not affect the tax status for the recipient. Understanding the exclusion of gifts and inheritances provides clarity on how they impact an individual's gross income and overall tax liability.