What type of income is classified as excludable income?

Excludable income refers to certain types of income that are specifically not subject to federal income tax. This is significant in tax law as it allows individuals to receive certain types of revenue without the burden of taxation. The option identified correctly points to income that is exempt from federal income tax, meaning that it does not need to be reported on a tax return and is not included in the taxpayer's taxable income.

Examples of excludable income include certain types of interest from municipal bonds, gifts, and inherited property, among others. It is important for taxpayers to understand which types of income are excludable to correctly prepare their tax filings and minimize their taxable income.

The other choices represent types of income generally subject to taxation. Income from wages and investments, as well as capital gains, typically contribute to taxable income and are reported on tax returns. Understanding the distinctions between taxable income and excludable income is crucial for effective tax planning.