My husband is a US citizen, I am a resident. My mother-in-law immigrated to the US in 2000 and is also a resident. She had (and still has) real estate in her home country Germany, that has been sold over the last years. She had a very high sum of debt in Germany, so the proceeds of the sales first were used to pay off the debt.
She's finally made some money with those sales and the proceeds have been transferred from Germany to her and our checking accounts here in the USA. We invested some of the money and get interest income. We will report the interest income on our tax return.
What about the money transferred? My mother-in-law pays income tax for the sales proceeds in Germany.
Do we have to pay income tax on the entire amount of the transfers or just the interest payments for the investments?
Can she categorize the transfers as monetary gifts to us? As far as I know there's no tax on gifts or am I wrong? Anyway, I'd really like to know how to approach this, we don't want trouble with the IRS.

There is no tax on transferring money to the U.S.
A U.S. citizen or resident must report worldwide income so she must report real estate sale on schedule D (Form 1040). If she paid taxes in the foreign country, file Form 1116 to claim foreign tax credit.
Another filing requirement is Form TD F 90-22.1. Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income