Lending Club and Prosper Tax Information for 2015

Lending Club and Prosper Tax Information[Disclaimer: I am not an accountant nor am I qualified to provide tax advice. This post merely shares how Lending Club and Prosper are presenting their tax information this year. You should seek professional advice before taking action on any of the ideas presented here.]

When it comes to taxes and p2p lending, things can get quite complicated. This is especially true for new investors as it can be overwhelming to see many unfamiliar forms. The length and amount of forms you have available to download can vary depending on when you began investing and any losses you incurred. There can also be recoveries, which further complicates things. This post will help Lending Club and Prosper investors find the information they need to file taxes for 2014.

Lending Club Taxes

Lending Club has provided an eleven page tax guide, which is much more detailed than last years. I have to give Lending Club a lot of credit for providing a useful tax information guide. It can be found in the tax statements section of your Lending Club account. Otherwise, you can download it from this direct link. The guide explains which accounts will receive certain tax forms, which are outlined below.  These statements should all be available in your account as of January 31, 2015.

Lending Club Tax Forms
Click for larger view.
LendingClub 2014 1099-OID
Lending Club 1099-OID. Click for larger view.

This year Lending Club has shown generally where numbers go on forms like the 1040 and 8949. Since they cannot provide tax advice, the verbiage isn’t definitive. Regardless, the tax guide could be extremely helpful for investors who do their own taxes. I’ve included the below screenshot, which shows where information related to charged off notes is reported. Keep in mind that neither Lending Club nor Folio Investing report information about charged off loans to the IRS.

LendingClub Report Charged Off Notes
Click for larger view.

If you have losses and recoveries, Lending Club will actually report these as short and long term separately. Below is my Lending Club tax summary, which provides a great overview of my account for the year.

Lending Club Tax Summary
Tax summary. Click for larger view.

I spent some time researching why I had a cost basis in the 1099-B table. In my case, this was due to Lending Club giving me a credit for an ineligible loan that I invested in. For whatever reason, this specific loan was cancelled by Lending Club. It showed up as a recovery, but Lending Club included the cost basis to offset any gains.

At the end of the guide, Lending Club gives the following as a note on gains and losses.

Gains and losses from recoveries, sales, or charge offs related to Lending Club Notes are generally reported for tax purposes as capital gains or losses, rather than ordinary gains or losses. Notes are generally considered capital assets because they are owned for the purposes of investment (similar to a stock or a bond). Generally, realized capital losses are first offset against realized capital gains. For individuals, any excess capital losses can generally be deducted against ordinary income up to $3,000 ($1,500 if married filing separately). Losses in excess of this limit may generally be carried forward to later years to reduce capital gains or ordinary income until the balance of these capital losses is fully utilized.

Prosper Taxes

Prosper doesn’t provide a thorough guide like Lending Club, but does have a FAQ tax section, which answers many of the common questions. Your tax statements can be found under the “History” tab and then clicking on “Statements”. Please note that the Prosper screenshots are from Peter’s account. Since I did not incur any losses for 2014, I only received a 1099-OID.

Prosper statement download screen
Prosper statement download list. Click for larger view.

Among the FAQ is a list of each form you may receive depending on your account. They are listed below for reference.

1099-INT

You will receive a form 1099-INT in each tax year that you earn $10 or more in interest on Notes purchased prior to 2009, unless you live in a state for which there is an applicable reporting exception.

1099-MISC

You will receive a form 1099-MISC in each tax year that you receive borrower late fees, referral awards, bonuses, incentives, and the like. Income shown on form 1099-MISC will be reported to the Internal Revenue Service and State tax authorities in the event applicable thresholds as established by them are met.

1099-OID

You will receive a form 1099-OID in each tax year that you have interest income on Notes originated in 2009 or later. Income shown on form 1099-OID will be reported to the Internal Revenue Service and State tax authorities in the event applicable thresholds established by them are met. This form details income reported on Notes that are subject to OID tax reporting.

Prosper 2014 1099 OID
Click for larger view.

1099-B

If you sold Notes on the FOLIOfn trading platform during the tax year, you will receive a Form 1099-B from FOLIOfn that shows your sale date, proceeds, and cost basis, broken down into short and long term gains. You will receive a Form 1099-B from Prosper for any Notes that were charged off/ discharged during the tax year or recovery payments received during the tax year. Note that these will exist for both long and short term losses/recoveries as shown below.

Prosper 2014 1099-B Long Term
1099-B Long-term. Click for larger view.
Prosper 2014 1099-B Short Term
1099-B Short term. Click for larger view.

After the 1099-B overview page, you will see a detailed list of every every note that was charged off or had a recovery. You will not receive a 1099-B if you do not have any losses, which is common for new investors.

Deducting Losses

Many seasoned p2p lending investors are aware of the somewhat unfavorable tax treatment for p2p lending, but this only applies if you are investing solely in a taxable account. The base of the complaints comes from interest payments counting as ordinary income and the losses being considered capital losses. Each year, individuals are only able to deduct a maximum of $3,000 in capital losses, but the remainder may be carried forward to future years.

How can you work around the $3,000 deduction limit? If you had capital gains from stock sales, the capital gains can be used to offset the losses. Another way is to invest in Lending Club or Prosper notes in a retirement account. If you have a combination of taxable p2p lending and retirement accounts across all loan grades, it may be wise to invest in higher risk notes in an IRA. This way, you can have a more conservative strategy in your taxable account where losses are less, thus allowing you to have a larger investment account. Keep in mind that losses beyond $3,000 aren’t lost, they are simply carried into future years.

Hopefully this review helps you get a better understanding of each of the forms you may receive when investing in Lending Club and Prosper.

None of this information should be considered tax advice. I recommend consulting a tax professional before taking action on anything included in this post.

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PennySaved
PennySaved
Mar. 5, 2015 12:08 pm

It seems that the Lending Club Tax Guide and your post indicates that some charge-offs can be treated as long-term losses. But I always thought that charged-off notes were to be treated as non-business “bad debt” for individuals and the IRS publication 550 states that losses due to bad debt should be reported as short-term losses, regardless of the time period involved. I report all my charge-offs as short-term losses to be on the safe side because I have not seen anything definitive from the IRA regarding how to report this information.

Simon Cunningham
Mar. 6, 2015 7:38 pm

Nice overview Ryan. I wish these things were easier. The complexity of these taxes is definitely one of those sticking points that stops some investors from getting in deeper than a trial investment.

Any thoughts about how things might eventually be simplified?

Ryan Lichtenwald
Ryan Lichtenwald
Mar. 9, 2015 1:15 pm

I think Lending Club providing a thorough tax guide is a great first step. There is still some disagreement on how things should be reported in the eyes of some people – as evidenced on the forum. It would be nice if there was an official way of how everything should be reported that all p2p lending investors have to follow. For me, my tax situation is already complicated enough, so I’m happy to forward documents to my tax advisor. I do agree that it is a sticking point for new investors. All the more reason to consider an IRA I guess.

Umberto
Jun. 28, 2015 10:56 pm

Excellent article – thank you for sharing! But, regarding this excerpt from your second-to-last paragraph—

“If you have a combination of taxable p2p lending and retirement accounts across all loan grades, it may be wise to invest in higher risk notes in an IRA. This way, you can have a more conservative strategy in your taxable account where losses are less, thus allowing you to have a larger investment account.”

My sole account is taxable, though if I had both a taxable and an IRA my approach would differ than the above suggestion. I would invest more conservatively in the IRA and aggressively in the taxable, so that charged off notes translate into capital losses / tax savings. Charged off P2P notes are unfavorable but getting to report capital losses buffers the damage, no?

Peter Renton
Admin
Peter Renton(@peter)
Jul. 20, 2015 6:12 am
Reply to  Umberto

My thing about charge offs is that you are limited to $3,000 per year. Depending on your risk levels as little as $30,000 could cause you to go over that limit. So, my comments here were based on that limit. If you stay under then yes, charged off notes can be offset against gains.

Raz
Raz
Mar. 6, 2017 6:46 pm
Reply to  Peter Renton

Do you mean per year like with stocks? Doesn’t that work like: if you had a net loss of over $3,000 then the excess (if you lost $4000 then $1000 = the excess) gets carried over to the next year.

Rao
Rao
Jan. 29, 2017 7:54 pm

Hi there,

So I just got my LC tax statement and the list of long-term items on the Form 1099-B (recovery of charged-off items) is now 13 loans long. Do I need to itemize and report each one or can I report just the total (proceeds, cost basis, etc.)? I’m afraid the answer is the former but I was hoping someone could confirm/correct this for me.

Thanks,
Rao

Peter Renton
Admin
Peter Renton(@peter)
Jan. 31, 2017 4:00 pm
Reply to  Rao

I am not qualified to provide tax advice but I can tell you on my own return in the past I have reported just the totals.

Rao
Rao
Feb. 2, 2017 11:53 am
Reply to  Peter Renton

I appreciate your response, Peter. Thanks. I didn’t realize there was a 2016 article and was worried no one would see this.

I’m now thinking about eventually closing this taxable account (i.e. stop reinvesting) and opening an IRA account.

Thanks again,
Rao

chetan
chetan
Mar. 4, 2017 10:48 am
Reply to  Peter Renton

Peter, I also want to report the totals (too many lines to report individually). what do you put for sale dates in this case though? Various-L?

Thanks,
Chetan

Peter Renton
Admin
Peter Renton(@peter)
Mar. 15, 2017 12:39 pm
Reply to  chetan

Chetan, Exactly.

Eve
Eve
Mar. 13, 2019 9:25 pm

How do you report the 1099-OID Box #1 besides just listing it on Schedule B as interest income? I have a capital loss on 1099-B overall. Specifically how about the OID Adjustment? Can someone please explain if I can have an OID Adjustment offsetting the amount on Schedule B. And if so, Is that offset limited? Thanks.