Registered Tax Return Preparer RTRP Practice Exam 2025 – The Comprehensive All-in-One Guide for Exam Success

Question: 1 / 400

Which of the following types of income is typically not subject to federal income tax?

Income from employment

Certain gifts and inheritances

Certain gifts and inheritances are generally not subject to federal income tax for the recipient, which makes this answer correct. When an individual receives a gift, the donor may be liable for gift tax if the gift exceeds the annual exclusion limit, but the recipient does not have to report the value of that gift as income. Similarly, inheritances are also not considered taxable income to the heir, although the estate may be subject to estate tax depending on its size.

This distinction is crucial, as it supports the idea that some forms of income or value transfer do not trigger income tax obligations for the individual receiving them. In contrast, income from employment, rental income, and interest income are all considered taxable events that must be reported on a taxpayer's return. These forms of income are generated from services performed, property rental, or savings and investments, and as such, they are subject to federal income tax regulations.

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Rental income

Interest income

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