☰
✕
Sign In

Why sign in to the Community?

  • Submit a question
  • Check your notifications
Sign in to the Community or Sign in to TurboTax and start working on your taxes
New Member
posted Mar 19, 2025 2:53:41 PM

Reporting losses from a wind down trust (bankrupcy)

I recently received a Grantor Letter from a trustee handling a security that we had invested in years ago.  The investment went sour, and was placed in a "Wind Down Trust".  Basically, it in the process of chapter 11 bankruptcy.  This letter states "THE FOLLOWING INCOME DEDUCTIONS AND CREDITS ARE TO BE REPORTED ON THE FEDERAL INCOME TAX RETURN OF THE ABOVE NAMES GRANTOR, IF REQUIRED".  The letter states that this is for income tax purposes and is being furnished to the IRS.  This letter also states that it does not constitute a distribution from the Trust.

 

There is no IRS form number on this document.  It includes the following line items:

 

"Other Income" (interest and other income)                                                                 XX.XX

Attorney and Accountant Fees (see Federal/State instructions)                               XXX.XX

Administration Cost (Enter on form 1040, Schedule A)                                             

Other General and Administrative Expenses                                                               XXX.XX

Realized Loss on Marketable Securities                                                                 -XX,XXX.XX

 

Since this is all they provided, I am at a loss as to where to enter all this information.  The loss is substantial, so I really need to figure this out.  Any detailed help would be greatly appreciated!

 

 

0 3 6067
3 Replies
New Member
Mar 20, 2025 12:44:09 PM

I have the same question!

New Member
Mar 21, 2025 7:32:20 AM

I spoke with someone from the company supplying the document.  They said that a 1099-X form cannot be generated from a liquidating trust, but that the "Other Income" should be entered on {Schedule B, Part 1 - Interest}, and that the "Realized Loss on Marketable Securities" should be entered on {Schedule D, Line 12}.   He said the other two line items {Fees and Expenses} do not need to be reported.   Problem is, I still cannot figure out how to enter that line item on Schedule D, Line 12.  I am using Turbo Tax Premier Desktop version.  Can anyone help with how to physically navigate to that and enter on that line item?

Expert Alumni
Mar 26, 2025 2:56:47 PM

 This must be entered on a K-1 form.  The Grantor letter serves as a K-1.

 

  1. With your return open go to income
  2. S-corps, Partnerships, and Trusts
  3. Schedule K-1
  4. When it asks about what type of a K-1, indicate it is a trust form (1041)
  5. Then it will ask you for the name and EIN of the trust that issued the letter.
  6. Now you should see a series of Boxes, select 1 and 5.
  7. In box 1, list the amount 
  8. For Box 5, represent the loss reported with a negative sign in front.
  9. This loss will now appear in Box 10 of Schedule D but not 12. The point is this it is reported in your return and you are being credited for the loss.

There is no deduction for administrative costs.  For attorney fees, you can enter these as legal fees in the deductions and credit section of your return. These are not deductible on the federal return but they may be deductible in a state return depending on where you live.