02/12/2026
📋 The IRS taxes most of what you earn. But not everything.
Some income sources are completely excluded from federal taxation. Others got new deductions under the OBBBA that effectively make them tax-free up to certain limits.
Gifts up to $19,000 per recipient per year are tax-free to both the giver and recipient. Married couples can give $38,000 per person. Exceed the annual limit and you file a return, but you still don't owe tax unless you've burned through the $15 million lifetime exemption.
Inheritances are not income. The estate may owe tax if it exceeds $15 million ($30 million for married couples), but the heir receiving the money does not pay federal income tax on it. A handful of states do levy inheritance taxes: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
Two OBBBA provisions are new for the 2025-2028 tax years. Workers in tipped occupations can deduct up to $25,000 in qualified tips. FLSA-covered workers can deduct the overtime premium portion of their pay, up to $12,500. Both phase out above $150,000 MAGI ($300,000 MFJ). These are technically deductions, not exclusions, so the income still shows up on your W-2 and is subject to F**A.
The home sale exclusion is one of the largest tax breaks available. Sell your primary residence after living there 2 of the last 5 years and the first $250,000 in gains ($500,000 MFJ) is tax-free. No age requirement.
One nuance on Roth distributions: they are only tax-free if the account has been open at least 5 years and you are 59½ or older. Early withdrawals of contributions are penalty-free, but earnings withdrawn early may be taxed.
