The following is for reference only. I am not a tax advisor nor am I offering any advice on your taxes. If you have specific questions about your situation you should consult with a tax professional. This information should apply to Lending Club as well. However, since I do not have any form of 2007 statement from them I do not think I can report my LC interest.
Prosper has a page on taxes here.
I will talk about my specific situation and then address a couple of other possible situations.
Interest
From my Prosper provided consolidated 1099 I can see that I earned $981.72 in interest. This interest is reported as ordinary interest on schedule B.
Defaulted Loans
Here are mine from the consolidated 1099:
This gives me the sale date and the net proceeds for each loan, but in order to fill out schedule D I will need the presale principal balance and the purchase date. For that I cross reference with year end lender statement and find the following at the bottom of the statement…
When a loan is sold it is handled from a tax perspective exactly like the sale of a security. It will be long term or short term based on the purchase and sale dates.
While I do not have any bankruptcy loans if a loan becomes worthless (as opposed to sold) you may be able to treat it differently.
Late Fee Payments Received
I had $1.71 in late fee payments and it should be reported as other income not subject to self-employment taxes.
Referral Rewards
Referral rewards need to be as other income not subject to self-employment tax. I had $291.88 in referral rewards.
Collection Fees and Service Fees
These are miscellaneous expenses and are subject to the 2% AGI exclusion. I had $36.39 in loan servicing fees and $3.65 in collection fees.
Group Leader Rewards
I did not have any, but it seems like other income. If you choose I think you could report as a business Schedule C and then have the option of reporting expenses against the income.
Did I miss anything? Do you have other interpretations? Please leave a comment.
If you did not get a 1099 that means Prosper did not report your income/sales to the IRS. It does not mean that you can ignore your taxes. You are on your honor to report the income and sales and all the information you need is on the 2007 year end lender statement. (Thanks Adi R for the comment.)
Yes I am doing my taxes this weekend.
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15 comments ↓
This is all neat and such, but I did not get any 1099 from Prosper.
According to them, under $400 income will not get 1099, but according to IRS, anything above $10 in interest must be reported.
So what gives?!
All the information on the 1099 is also on the 2007 year end statement. Since you didn’t get a 1099 you are on your honor to report your income and sale transactions.
I’m wondering if the loan servicing fees that were part of loans that were sold can be used to increase the basis(cost) of those loans. That’s what I got from reading IRS Pub 550, page 42 last paragraph at the bottom.
“The basis of stocks or bonds you own generally
is the purchase price plus the costs of purchase,
such as commissions and recording or transfer fees.”
I figure the servicing fees are an unavoidable cost of purchase.
That was VERY helpful.
Thank you!!
(Would have been good if prosper’s tax page was equally helpful e.g. step by step instructions)
[...] RateLadder wrote about his Prosper Taxes. [...]
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Whoa! I opened a Prosper account in 2008, so I will need to deal with this stuff in a year. I hope that Prosper makes it a little bit easier!
Oh my goodness. I didn’t really make anything with Prosper last year, since my payments just started coming in this month. I’m not looking forward to doing taxes this year though, especially with this on top of all of my freelance paperwork. I think next year I’m going to have to hire an accountant. Does an accountant even know how to deal with Prosper properly?
My account knew how to deal with it… I did need to explain what they were and how they worked, but once he understood they were loans he knew exactly how to deal with them.
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I also wanted to stop in and say thank you. This is a huge question for a lot of people who invest in P2P lending. Thanks!
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