where to file GWG Wind Down Trust income(loss) etc

[shchan888]

GWG bond company went bankrupt and its bonds transferred to GWG Wind Down Trust. The trust issues Grantor letter for grantor(the bond holders) to report tax return.  The letter contains, among others, "passive income(loss) from Business (enter on Form 1040, see the instruction)". Where to enter in Form 1040?

I tried to do the following: In Turbotax, under Business section, Business Income and Expanses, I entered it as a business and enter passive income(loss)  amount in General income. The amount is loss, so I entered  a negative number(loss), but  my federal tax is increased, not decreased! When I entered Other income(interest and other income) as a positive number, my tax is decreased, not increased! How to file correctly?

[M-MTax · Accepted solution]

Have you tried entering it as if you received a K-1?

[shchan888]

Yes, I tried different K-1. The one K-1 (Form 1041) seems to work. Thank you.

[srichard56]

Can you provide more information on how to do this within turbotax deluxe.  My letter just covers 2024 calendar year and doesn't cover my entire loss.

[BrittanyS]

ReneeM7122 proves great steps on a similar thread in the community.  I have copied the steps here for easy review, "To enter a grantor letter, you need to use the Premier version of the software.  To do it, you will enter the information as though you received a K-1.

Box 1 on the K-1 (1041) is for interest income which will flow to Schedule B, as will Box 2a for dividends.

Boxes 3 and 4a on the K-1 (1041) are for short-term and long-term capital gain, respectively, which will ultimately wind up on Schedule D.

Here is how to enter a K-1:

ou need to use the Premier version of TurboTax to enter a Schedule K-1 in TurboTax.

Please make sure you use the right K-1 entry form. There are actually three types of K-1s, depending on the type of entity creating the K-1: partnership, S-corporation and trust/estate.  Lines and codes on the forms differ from each other.

 To enter information from a Schedule K-1, please follow these steps:

1. Click on Federal Taxes > Wages & Income > I'll choose what I work on.
2. In TurboTax CD/Download:  Go to Business Investment and Estate/Trust Income, click on the Start/Update box next to Schedule K-1.   In TurboTax Online:  In the S-corps, Partnerships, and Trusts section click the Start/Update box next to Schedule K-1. 
3. Click Yes on the next screen, Schedules K-1 or Q.  
4. On the Tell Us About Your Schedules K-1 screen.  Click the Start/Update box next to the type of entity that issued the K-1 (S-Corps, Partnerships, Trust/Estate).
5. If you have already entered K-1 information, you will see a Summary screen.  Click Add Another K-1 to enter your information  (or click on Edit to continue with the existing form entry).   
6. If you haven't started entering K-1 information, continue through the screens, entering the requested information."

See the link below for additional information:

• How do I enter Grantor Letter

@srichard56 

[srichard56]

Brittany,  I ended up doing the following.  In TurboTax Deluxe under Investment Income, Stocks, Bonds, etc., I entered a Capital Loss in the total amount from the two separate Grantor letters that my wife and I received for 2024.  After entering TT then showed a $3000 capital loss used for 2024 with the remained carried forward to 2025.  Would entering as a K-1 in Tubotax Premier have handled these Grant Letters differently.  Please explain, thanks.

[DianeW777]

Yes, the capital losses would end up on Schedule D the same way. Whether you enter the amounts in a K1 or as an investment income/loss. The carryforward would also be the same. You can file with the entry the way you entered it in your TurboTax return.

If the loss should happen to occur in an IRA, then it would not be included in the tax return unless you actually received a distribution. No earnings inside of an IRA have ever been taxed, any deductible contributions to a traditional IRA have not been taxed so therefore any loss in the account would not be included in your tax return until and unless you receive a distribution.

@srichard56 

[Edited: 04/06/2025 | 12:31 PM PST]