Robert Allison wrote:

Sure. You can do anything you want. Rather than extend the
drywall, you could come up with a window size and a trim
detail that extends over the newly installed drywall and
eliminate the problem that way. If you are talking about
windows that require a wrapped jamb (wrapped with drywall),
then my suggestion will not work, of course.

Most older windows (double hung, wood) will have
counterweights behind the trim. Newer wooden windows do not
use the counterweight system, so the windows can be wider,
taking up the space of the counterweights. If you can do this
(and some of this is determined by your exterior wall
covering), then the same size trim will reach over and cover
the drywall that you installed.

I hope this makes sense, because it is rather difficult to
explain, but easy to see.

Robert, thanks again for a great answer. It's a bit difficult for me
to visualize at this moment. However, if all goes well with the
closing (today), in a few days we'll go there and really look/poke
around, so I'll have a better understanding of what
materials/challenges there are, and I'll surely be back to this topic!

I appreciate the great details you're giving! Thank you!
Elana