A Guide to Filing Your Lending Club and Prosper Taxes

[Update: This post was written in 2012 and in 2013 Lending Club changed their policy to include all notes on their 1099-OID, not just those notes that earned at least $10 interest. You can read the 2013 Lending Club and Prosper Tax Guide here.]

This past weekend I spent a good couple of hours working out my taxes for my Prosper and Lending Club accounts. The process is actually pretty simple once you know what to do but it is figuring out where everything goes that takes time. Hopefully this guide will help.

Of course, before I go on I need to point out that I am not a CPA and so this should not be construed as tax advice. You should always consult a tax professional before taking action on any advice presented here. To be clear, everything discussed in this post only applies to taxable accounts – if you have an IRA account at Lending Club and no other p2p lending investment you can ignore this post.

The process for doing your taxes for Lending Club and Prosper is pretty much the same. Both companies record their data a little differently but both provide helpful year-end statements that contain most of the information you will need. However, there is a small challenge that affects Lending Club investors.

The Problem with the Lending Club 1099-OID

My main taxable account at Lending Club had almost 600 notes on December 31st, 2011 and I received $1,346.79 in interest on these notes in 2011. But when I received my 1099-OID from Lending Club it showed that I had earned just $13.63 in interest from just one note. What gives?

Lending Club will only include in your 1099-OID interest on notes that have earned more than $10. This means that if you have just $25 or $50 notes (as I mostly do) you will likely never earn more than $10 in interest on any one note in a given year.

Also, if you are not reinvesting and have mostly older notes in your portfolio these notes earn less interest than newer notes. So it is possible you received a 1099 in 2010 but no 1099 this year because no note earned more than $10 in interest.

You Probably Need to Ignore Your Lending Club 1099-OID

Lending Club is adhering to the letter of the law when it comes to issuing your 1099-OID. Unfortunately, the information contained on this form is pretty much useless for you. You need to report your total income received from Lending Club, not just those notes that earned $10 or more.

So unless you only have high value notes (say $250 or more) then most likely your total interest earned will not match your Lending Club 1099-OID.

You May Receive Three Different 1099’s

This year I received three different 1099’s from Lending Club. Let me explain each one here:

1099-OID – This is for interest and as I said above only includes the amounts from those notes that earned $10 or more in interest.

1099-B – If you used the Lending Club trading platform to sell notes during 2011 then you will receive a 1099-B. This details all your transactions with dates, cost price, sale price and whether it is a long term or short term gain.

1099-MISC – Lending Club offers promotions from time to time for investors and if your gain from these promotions exceeds $600 then you will receive a 1099-MISC form. This should just be treated as ordinary income.

Prosper Makes Your Taxes a Little Easier With Their 1099

Prosper handles their 1099-OID differently to Lending Club. Instead of just including interest from notes that have paid more than $10 in interest, they include the total interest earned from all your notes as long as that total is at least $10. This does make the process a little easier for investors.

However, for Prosper trading platform accounts they don’t provide all the information you need on their 1099-B. If you sold notes during the year you will have received a 1099-B that will show your total proceeds from the sale of your notes.

Unlike Lending Club’s 1099-B, Prosper does not provide your cost basis nor your date acquired so you cannot tell from the 1099-B whether you have made a short term or long term gain. The good news is that they do provide this information on their Year-End Statement, which you must download and review in order to do your taxes accurately.

Yet Another Kind of 1099 – The 1099-INT

Yes, there is another kind of 1099 form that some investors may receive. Those investors who held notes that were issued prior to SEC registration will receive a 1099-INT. For Lending Club investors that means notes issued prior to October 2008 and Prosper investors it means for notes issued prior to 2009.

Pretty much all these loans are now mature since they were all three year loans issued prior to 2009, so this will likely be the last year that any investor will receive a 1099-INT from Prosper or Lending Club.

How I Calculate My Total Tax Liability

In reality you don’t need to work out your total tax liability, you just need to enter pertinent information into different sections of your tax return. As I said I am not an accountant but this is how I worked out my taxes for my Lending Club and Prosper accounts. You will need your Year End statements from both companies. Also, to obtain the total service fees paid at Lending Club you will need to add this amount from each monthly statement for the year. Depending on your situation service fees may or may not be deductible so I think this step is optional for many people.

Here is where I am putting the different numbers on my tax return:

Total interest earned: Schedule B, Part 1 – Interest

Late fees + any bonuses or rebates: Other Income

Service fees: Schedule A, Line 23

Defaults: Schedule D, Short Term or Long Term Gains and Losses (based on holding period) with an itemized list

Folio sales: Schedule D – Short Term or Long Term Gains and Losses

There is still no standard as to how these investments should be reported – even Lending Club and Prosper say as much in their prospectus. But that is how I intend to file my taxes for Lending Club and Prosper this year.

I would love to hear feedback from others, especially any CPA’s or tax professionals. Are there any places where you disagree with my assessments? Please let me know in the comments below.

More P2P Lending Tax Resources

Lending Club tax FAQs
Prosper tax FAQs
IRS Publication – Investment Income and Expenses

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Mar. 12, 2012 10:09 pm


I only read the first few paragraphs (I’ll read the rest later), but I wanted to comment, before I forgot what I wanted to say.

LC only reports OID on”individual notes” that paid over $10, while Prosper reports all interest paid. For me, this is a huge difference….I received a 1099 from Prosper with almost $16,000 in interest, all on $25-50 notes….If those investments were all at LC, my 1099-OID would only report around $500!

(FWIW, I am an accountant, and I’m not sure whether LC or Prosper is reporting the interest correctly, but you are correct that the investor needs to report all earned interest, regardless of what the 1099-OID reports. I would think that LC is reporting correctly according to Internal Revenue Code, while Prosper is going beyond the letter of the law and reporting more “accurately”).

Bottom line, the IRS needs to issue guidance for P2P / crowdfunding companies, so whichever way it goes, the 1099 reporting is the same between ALL P2P companies.

As a PS…when I was actively preparing taxes for clients, if a client brought me a 1099-OID for $500, they wouldn’t tell me “oh, btw, that’s really $16,000 we need to report” and most accountants (99 out of 100) won’t ask for clarification on the 1099-OID from Lending Club, by asking “tell me a bit more, and bring me your year end statement”…and 999 out of 1000 times, the $500 reported will not never be questioned by the IRS (in 25 years of preparing taxes, I’ve never had a Schedule B audited, if the 1099s matched the amounts reported).

I would love to hear other accounting professionals comment on this issue.

Mar. 13, 2012 2:53 am

Can you please provide more detail on how you plan to enter the default data in the Schedule D?

It appears that all charged off loans for 2011 are listed in the “non-performing” load details section of the December statement. I am assuming that only charged off loans should be entered in the Schedule D. Late loans shouldn’t be included on the 2011 tax return. (If they default in the future, they will be included in subsequent years.) I am assuming the “cost basis” of the bad loan is simply what is listed in “Outstanding Principle” (i.e., “Principle Invested” minus “Principle Received”). I am assuming “sales price” for defaulted loans is listed on the Schedule D as zero. Now, here is the hard part: the December statement does not indicate the purchase date or the date that the load was determined by Lending Club to go from “Late” to “Charged Off.” These dates need to be entered on the Schedule D and they are critical to determining if this is a short term or long term loss.

Thanks for the help!

Mar. 13, 2012 12:07 pm


I deducted my non-forming notes as 2 seperate line items on Schedule D.

For the dates acquired and dates sold, I put “various”.

The 1st line had all my “short-term” charge offs, with the basis being the total amount of the short term loss, and the sales price of zero.

The 2nd line had all my “long-term” charge offs.

These totals are all available on the last page of your Prosper 1099.

You can also attach the detailed listed on all the charged off notes, although I find that this is not necessary.

You are correct that you do not do anything with “lates” as those are still, technically, “performing” and are not yet considered “worthless”.

Disclaimer: This is info is for Prosper notes, as I currently do not invest at Lending Club.

Charlie H
Charlie H
Mar. 13, 2012 2:04 pm

IMHO this is the largest barrier to entry for LC or Prosper.

Proper tax reporting.

Mainly because the IRS has provided only vague guidence on this and even if you fill out you 1040 S-B and S-D in a good faith… you may still run afoul of the IRS.

Mar. 13, 2012 2:14 pm


That’s why you should always have a 3rd party (ie accountant) complete your taxes….gives the taxpayer some one to blame and you have “plausible deniability”.

Worst case, the IRS re-computes the taxes and you pay the additional amount owed. Penalties (generally) in these type of cases would not be very large.

I do see at some point in the future the IRS will issue some guidance for the way that LC is issuing their 1099s and only reporting >$10 interest on each note, as opposed to total interest earned, and they could (small chance) do this retroactively. So, if your LC 1099 shows $500, but you know your earned $16,000, I do recommend (both as a P2P investor and an accountant) that you report the full $16,000.

Mar. 13, 2012 7:06 pm

@Peter’s response @Pentagron:

As long as your Schedule D “Total Proceeds” number matches exactly to the total of all 1099-B (Proceeds from Brokers), then, it is overkill. The only time I would attach the supporting docs, is if the numbers don’t match—then, I would recommend not only supporting docs, but a supporting statement explaining the difference.

Mar. 14, 2012 2:24 am

CA-Lender: You raise a good point regarding 1099-B’s. Actually, Lending Club did not issue a 1099-B, probably because by definition you get zero proceeds for loans that are charged off and there was no sales transaction. So, there are no proceeds to report. (When a security becomes worthless in your brokerage account, I don’t believe you get a trade confirmation; a trade confirmation is issued only when you actually sell a security.) The only tax reporting document I received from Lending Club is a long list of OIDs.

By the way, my plan is to include each defaulted loan on my Schedule D as a separate security. However, this is going to be a challenge because Lending Club does not supply purchase dates and charge-off dates on the list of charged-off loans in the December statement. You can’t aggregate all charge-offs on one line with the dates given as “various” because some will be short-term and others long-term

Mar. 14, 2012 7:58 pm

The problem with Lending Club’s 1099-B is that they provide only info of par value at time of sale which includes the accrued interest, so if you calculate total sales minus par you are avoiding tax on the accrued interest. In today’s situation the only way to truely calculate the actual gains on the trading platform is by running a whole series of calculations. It would be much more usefull if Lending Club would give us the outstanding principal instead of par value, and include the accrued interest in the sales gains.

Mar. 15, 2012 10:06 am

This is the correct way to deal with LendingClub earnings accordig to CPA’s:

Step 1: Retreive your annual statement and get the interest amount off of it

Step 2: Subtract any OID interest reported on last years taxes (you already paid taxes on this interest last year) for lending club loans from the interest amount in step 1. You will only have OID interest last year if you had lending club loans last year where you followed this procedure. This amount will be your “Other Periodic Interest” that you would normally get on a form 1099-OID

Step 3: For every outstanding loan you will need to calculate the OID interest and then add them all together. The OID interest is the amount of interest accumulated on the loan but not yet paid as of the December 31st. This is somewhat complicated and time consuming to do.

Example: A loan has $20.00 of remaining principal and interest rate of 10%. The payment on the loan is due on the 17th of every month.

There are 14 remaining days from Dec 17-Dec 31
The daily rate on the loan is .10/365
The accrued OID interest is therefore:

(20)*(14)*(.10/365)= .0767 (basically 7.67 cents)

Beware of notes where the payment was due in one year but not paid until the next. For example if your payment was due on the 29th of December but you did not receive the payment until the 3rd of January you will need to calculate OID amounts for November 29th – December 29th (30 days) plus December 29th-December 31st for that particular note.

Then you simply add up ALL of these OID calculations for each individual note. This amount will be what would be reported in the “Original Issue Discount” amount on the 1099-OID

Step 4: Go through your monthly statements and deduct the service fees. You will report this as investment expenses if you itemize deductions and have enough to qualify. This will be reported in Schedule A

Step 5: If you sold any of your notes on eFolio, there will be a year end tax statement 1099-B on there as well. Although generally correct, you will want to verify that the cost basis they report on this form matches the principal balance plus interest accrued but not paid thru the date of the sale. If it is not you will need to adjust this amount. You will enter 1099-B information in Schedule D.

Step 6: The charged off loans, if you believe to be uncollectable, would be reported as losses on Schedule D. The IRS states that for each bad debt you must attach a statement that includes 1) a description of the debt and the amount and date it became due, 2) the name of the debtor and the family or business relationship between you and the debtor, 3) the efforts you made to collect the debt and 4) and why you decided the debt was worthless. For example, you could show that the borrower has declared bankruptcy, or that legal action to collect would probably not result in payment of any part of the debt.

Fill out schedule D appropriately per the instructions reporting the amount as a loss.

Then attach to a statement tp schedule D as follows:

The debt is a peer-to-peer loan where Lending Club acts as an agent between the lender and the borrower.

Consequently I do not know the name of the debtor, but only know the debtor as Lending Club Member number _____ with Loan No. _____. Only Lending Club knows the name of the debtor. Also I do not have any family relations to the debtor.

The original loan was $_____ and the remaining principal is $_____

The remaining principal became due when the borrower ceased payments on ______ and Lending Club declared the loan from my uncollectable on ______.

Since the debt is not collateralized I do not expect to receive anything from the bankruptcy proceeds. I therefore deem this debt worthless.

Date and My Signature
My Name

Hope this helps.

Mar. 17, 2012 2:44 am

@Pentagron, for charged-off loans, yes, all you really need is the December statement. This statement shows ALL of your charged-off loans since inception. You’ll need to be careful you are not writing off a loan you’ve already written off in previous years.

I sold ~75 loans on the Lending Club trading platform this past year. Fortunately, the year-end summary is easy to copy and paste into a spreadsheet and has everything I need to calculate the gain/loss. I’m working on a Perl script that will import a .csv file and spit out a .txf file that I can import into my tax software. Yeah, it is probably overkill to list every single loan I sold, but I’m not taking chances with the IRS.

Mar. 20, 2012 12:07 pm

Peter –
First I want to thank you for posting this information; it is extremely helpful for newbies preparing taxes on LC Investments for the first time. I found your post last year (https://www.sociallending.net/investing-lending/doing-your-peer-to-peer-lending-taxes/) on this subject even more helpful as it demonstrated a formula which I simply plugged into Excel (THANKS!). As for how to report this on the tax form, aren’t these still OID investments even though interest is negligible? What I do is fill out a 1099 OID (unreported) in Turbo Tax after I calculate my earnings and let the software handle the rest. Not sure if this is correct but at least I claim the earnings..;-)

Mar. 21, 2012 4:12 pm

One thing I found annoying was that my 1099-B from FOLIOfn via Prosper was not available until February 28th. According to every source I can find online, the IRS’s deadline for issuing these is February 15th. I filed my taxes on February 16th, thinking I must not be getting this form, only to find out a couple weeks later that I was. It was a little frustrating.

Aug. 4, 2012 12:26 pm

Think this through guys. You don’t think the IRS reads the internet. Somebody is going to figure out what is going on with underreporting and at the vrey least make Lending Club go back and recompute more accurately.
I started reading about Lending Club from a NYT article. If I hadn’t done any more investigation I would have just taken a 1099 and handed it to my accountant. And then 5 years later I could find out it was all basically fraudalent. No thanks.
Plus how much time do you actually spend vetting 300 people. Do you count your time against the interest received?

Feb. 1, 2013 5:05 pm

For tax year 2012, I received 1099-OID that lists interest paid by each note, however small it is. This has solved a big problem – I can now handover my 1099-OID to an accountant and be happy to know there is no scope for misunderstanding with the IRS.

On the other hand I am not 100% confident about the 1099-B I received. Seems the cost basis does not include accrued interest (not that it would be big).

I haven’t had any notes default yet (knocks on wood), but would like to know how to report them if they occur in future.

Feb. 4, 2013 12:44 am

My 2012 OID is less then interest on.my year end statement even though all interest was reported not just the amounts over $10 as past years. My year end statement shows after int, minus fees, minus charge off to be $85. My OID is $277 and my year end statement is more than that. I think LC should clarify the reporting with the IRS as it is too cumbersome to even try and report bad debts on a computer tax reporting program as turbo tax. As for subtracting service fees I have never done that as I take the standard deduction.

Kathy Franklin
Kathy Franklin
Feb. 6, 2013 2:26 pm

This OID interest reporting is confusing to me. I have read the IRS publication Guide to OID, Pub 1212 and it makes my head reel with all the calculations. I thought I was all set to do my taxes using the Lending Club year end statement interest reported as $1311.14. Now I see I have a LC OID that says the OID for all my notes is $1256.97. I have about 550 issued and current notes So which interest figure do I report on my taxes? I really hope someone can explain how to do this simply.

I know how to do the charge-offs as bad debt on Schedule D. Actually had to report them on some other Form first, can’t remember the number. Will look it up and report back. Also the IRS instructions says to report nonbusinees bad debt as short term losses, regardless of time involved.

I have only two loans in Prosper now. Prosper OID for 2012 was reported as $3.49, but when I added up the interest received for those two loans in 2012, it was less than $3.49, more like just over $3.00. If I just report OID amounts year to year, will it all balance out over time?. I don’t want to have to calculate something on every single note and I want to report the proper amounts to IRS.

Kathy F
Kathy F
Feb. 6, 2013 2:47 pm

The IRS Form for reporting nonbusiness bad debts I was referring to earlier is Form 8949.

From IRS Pub 550 Investment Income and Expenses (Including Capital Gains and Losses):
Pg 57 There are two kinds of bad debts—business and nonbusiness. A business bad debt, generally, is one that comes from operating your trade or business and is deductible as a business loss. All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses.

Pg 58 How to report bad debts. Deduct nonbusiness bad debts as short-term capital losses on Form 8949.
On Form 8949, Part I, line 1, enter the name of the debtor and “bad debt statement attached” in column (a). Enter your basis in the bad debt in column (e) and enter zero in column (d). Use a separate line for each bad debt.

Make sure you report your bad debt(s) (and any other short term transactions for which you did not receive a Form 1099B or substitute statement) on Form 8949 with box C checked.
For each bad debt, attach a statement to your return that contains:

A description of the debt, including the amount, and the date it became due;

The name of the debtor, and any business or family relationship between you and the debtor;

The efforts you made to collect the debt; and

Why you decided the debt was worthless. For example, you could show that the borrower has declared bankruptcy, or that legal action to collect would probably not result in payment of any part of the debt.
I have over 20 Lending Club loans that were charged off in 2012. I am not listing every one on Form 8949, but I will have only one listing “Lending Club Defaulted Notes- Charged Off” followed by “Lending Club Bad Debt Statement attached” in Column(a). Then I am reporting the total charge-off loss reported in column (e) of Form 8949.

I will follow up with a later comment on what my attached text statement and spreadsheet of notes looks like.

Kathy F
Kathy F
Feb. 6, 2013 3:00 pm

I just saw this on https://www.p2plendingnews.com/2012/01/peer-to-peer-lending-tax-guide/
posted Jan 2012
Lending Club will issue a 1099-OID form to investors for all Lending Club notes issued after October 24th, 2008. The calculation that Lending Club uses for the form is the interest payments and late fees that you have received as a borrower, minus the service fees that you pay as an investor. You will only get this form if you paid $10.00 or more in interest each year.
Huh? Is this really correct? Why would they deduct the service fees from the interest? I did total my services from all the LC monthy statements. I will have to check and see if my service fee total is accounting for the difference I see between my total interest payments shown on the LC end-of year statement versus the smaller amount of OID interest reported by Lending Club.

Kathy F
Kathy F
Feb. 6, 2013 3:06 pm

Well, I learn something new everyday. Apparently the OID reported by Prosper is NET of service fees.

From : https://www.prosper.com/help/investing/

Questions Related to OID Tax Reporting
How does the treatment of Notes as debt instruments with original issue discount impact tax reporting? You will generally be required to report OID income as ordinary interest income for U.S. Federal income tax purposes, regardless of your regular method of tax accounting.

How do servicing fees impact OID income? OID income is reported net of servicing fees.

Feb. 6, 2013 5:49 pm

I was just informed by email from LC that the 1099-OID form for 2012 that I received will be amended with a newer on in mid February and to use that to file taxes. So perhaps they are going to make the end of year interest match the OID amount. Will have to wait and see.

Feb. 20, 2013 8:29 am

My losses on charge-offs reported on the Schedule D exceed the $3000 allowed by the IRS. As a result, I’m not able to off-set the income from interest reported on my 1099-OID completely. This is probably a bigger issue for those of us who invest in higher risk loans because we have more loans default but we are rewarded with higher interest rates.

I look at my gains as basically Total Interest Earned – Losses from defaults, and think that’s what I should be paying tax on. However, according to the guidance I’ve got, I am paying tax on Total Interest Earned – $3000 maximum IRS allowable deduction, and that amount is significantly higher than my actual gains.

Does anyone have advice on a legal way to report the earnings and losses so that I am only taxed on the interest I’ve earned less the defaults? Are there any good P2P accountants that understand these nuances?

Jan. 6, 2014 9:05 pm
Reply to  Peter Renton

Hi, I was wondering if anyone has any more info or knows any p2p accountants that are familiar with this. (charge-offs exceeding the 3k limit and how to best handle this).


Feb. 21, 2013 7:28 am

You mentioned a scenario where someone might have an IRA with lending club but no other p2p accounts. Unfortunately that is an impossible wish scenario. The club requires all IRA members to carry at least 10,000 in notes to maintain a separate IRA fund.

Mar. 2, 2013 2:29 pm
Reply to  Peter Renton

Hi, Peter. Any update on your 2013 update of the LC Tax Guide? Inquiring minds want to know (and are worried about their taxes!).

Speaking for myself, I think I’ve got a handle on how to report interest income, LC fees and charge-offs — looks to me that LC has added a lot more useful information both in the year-end statement and the revised 1099-OID. But, how to efficiently report gains/losses on the FolioFN trading platform seems quite murky, especially if you’ve bought/sold a number of notes (my case). Any thoughts you might have on reporting gains/losses on note sales would be much appreciated! Thanks.

Mar. 7, 2013 8:27 am
Reply to  Peter Renton

Hi Peter, Thanks for all the research you are doing to figure out the tax issue. I really hope that Lending Club is following your website so that they can appreciate how hard and confusing this is. If an advocate for P2P such as yourself needs to expend this much time and effort to research how to file taxes, it makes it quite hard to persuade other users and potential investors that the return is worth all the worry and pain. Cheers, – Eliot

john Li
john Li
Feb. 2, 2014 12:31 am

This year I down loaded my Tax information which consisted of 11 pages.
I have participated in Lending Club for 3 years investing over $10,000. I did not invest any funds in the note trading platform website operated by Foliofn Investments, Inc. (Foliofn).
I have a print out of a 1099-OID. The amount is all interest for 2013 minus FEEs.
I also received a print out for a 1099-B with Long Term Gains. Also I received print out for a 1099-B with Short Term Gains. It also included 2 print out for 1 forLong Term report of charged off notes (that) have not been reported to IRS on 1099-B and one for short term charged off notes

I entered in my tax program the 1099-OID amount reported to the IRS in the first line. This I believe is taxed as interest for year 2013. I entered nothing else. It does not include losses from charged off notes.

I entered” LC CORP NOTE Long Term” in description for 1099-B. I went to the “entry for data” and that took me to Form 8949 so I could enter consolidated information rather that listing each small loan separately. And since the many loan groups listed on the “Lending Club print out” are qualifying sales, I checked yes in box. I asked for advice at this point and this is what I was told to do.
I “added” the “total amount” that has been reported to IRS on the 1099-B and the “total amount” that is calculated in my “Long Term report of charged off notes (that) have not been reported to IRS on 1099-B”. This figure is put on line for total cost or other Basis. I put on the next line the “total amount” from the 1099-B (Long Term) that was sent to IRS on line for “total sale proceeds”. My Long Term capital gain loss (since my charged off notes dollar total was much larger than the gain amount of my 1099-B amount sent to IRS) is the total amount that is calculated as my Long Term gain/loss for my 1040 1099-B. Holding period is VAR-L (various dates long term) .
I then did the same think again using “LC CORP NOTE Short Term” as new description with my Short Term (VAR-S )1099-B and “Short Term charged off notes” which both are also printed out on separate forms in the Lending Club print out. This also generated for me a loss from my charged off notes. Does this sound like the right way to proceed?

Stephen Barrera
Stephen Barrera
Aug. 22, 2014 9:18 am

Thank you Peter for a great and informative article. Doing my research now for tax season.