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.
