LendingClub and Prosper Tax Information for 2018

[Disclaimer: I am not an accountant nor am I qualified to provide tax advice. You should seek professional advice before taking action on any of the ideas presented here.]

For new investors in LendingClub or Prosper, it’s important to understand the documents you receive come tax time. For existing investors it’s important to be aware of any changes LendingClub and Prosper have made in their documents or the way the information is reported. Over time the documents have evolved, with both companies now providing a tax guide for their investors.

Note that investors who invest through a retirement account do not have to worry about tax reporting. Here at Lend Academy we believe there is a strong case for investing in marketplace lending through a product like an IRA. Here is our 2018 post on that topic if you’re interested in learning more about taxes and marketplace lending.

As you’re looking at the documents provided by LendingClub and Prosper you should understand at a basic level how profits and losses are reported. The interest or income from loan payments is taxed as ordinary income. Losses are either short or long term capital losses. Copied below is how LendingClub summarizes the tax treatment of investing in loans on the platform:

Generally, gains and losses from recoveries, sales or charge-offs related to LendingClub Notes are reported for tax purposes as capital gains or losses, rather than ordinary gains or losses. Generally, LendingClub Notes are 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 be deducted against ordinary income up to $3,000 ($1,500 if married filing separately). Capital losses in excess of this limit may be carried forward to later years to reduce capital gains or ordinary income until the capital losses are fully utilized.

Now that you have some background on the tax treatment, we can move into the details on how profits and losses get reported at LendingClub and Prosper.

Filing Taxes for a LendingClub Account

Note: If you plan to use TurboTax to file your taxes, LendingClub has a step-by-step guide on importing your forms here.

First you’ll want to navigate to “Statements” after logging into your LendingClub account. This can be done by clicking your name in the top right of the landing page once you login. On the next screen you will see a menu bar item titled “Tax Forms”. Clicking on the link will take you to another page which will include a link to your 2017 – 1099 Consolidated Package. Linked below your tax document you’ll find LendingClub’s provided 2017 Tax Form Guide. The guide does a great job of outlining which forms you will receive and where you should report this information when filing your taxes. The below table taken from the tax guide shares which forms you will receive.

My account is seasoned and I also participated in the secondary market in 2017 which means I received Form 1099-OID, Form 1099-B and Form 1099-B Folio Investing. It is summarized at the top of my personal tax document shown below.

My 1099-OID includes the total interest I received for the year which in my case is $2,058.76. As mentioned above, losses and proceeds are included in the 1099-B, split into short and long-term transactions. I’ve included my 1099-B for short-term transactions below. The long-term losses form is similar, but includes a fair amount of more loans and in turn a higher amount of losses. You can see below I had $12.21 in proceeds (recoveries) from loans that were charged off which is offset by the cost basis of charged off loans, $204.33. This resulted in a net loss of $192.12.  On my 1099-B outlining long-term transactions I had proceeds of $109.64 with a cost basis of charged off loans of $1,469.02 resulting in a net loss of $1,359.39. The short and long-term transactions roll up on the 1099-B summary shared above (middle box). Ignoring taxes, I earned a profit of about $500 on my LendingClub account for the year.

My 1099-B for Folio Transactions is also split out between short-term and long-term transactions. To keep things simple, I’ve only included only the summary below. You can see that I earned a slight premium on the notes that I sold on the secondary market in 2017.

It’s worth sharing the below statement from the LendingClub tax guide related to cost basis and the secondary market which is applicable to those who purchased notes in 2017:

Please keep in mind that Notes purchased on the Folio Investing Note Trading Platform may have been purchased at a discount or premium relative to outstanding principal plus accrued interest at the time of purchase, and additional information is provided in order to help you determine the cost basis for transactions involving these Notes. However, investors are ultimately responsible for tracking their tax cost basis. The basis reported on Form 1099 may differ materially from an investor’s tax cost basis, depending on the investor’s personal tax situation. For more information, please consult your financial or tax advisor.

Now that you understand the documents you have received you need to know where to report these numbers when filing your taxes. The LendingClub tax guide does a great job of outlining this. Interest reported on your 1099-OID is reported on Form 1040 as shown below.

Information from your 1099-B related to recoveries and proceeds from charged-off loans are reported on Form 8949. An example of reporting for short-term transactions is shown below, but long-term transactions are also reported on the same form in Part II (example included in tax guide).

Filing Taxes for a Prosper Account

Although the tax treatment with Prosper is the same, they share the information in a different format than LendingClub. After logging into your Prosper account you’ll want to click your name in the top right corner and select “History”. Next click on “Statements”. You may find that you have a corrected 1099-B as shown below which was issued on 2/27/2018. You’ll want to use the corrected version of the 1099-B.

Similar to LendingClub, Prosper has created a tax guide for their investors. Below are the forms you may receive and a description of each.

Below is my 1099-OID which includes the net interest of $840.62 I received for the year.

Prosper rolls up both short and long-term transactions on the first page of the 1099-B. They also display each loan in a different format resulting in a much longer document. My 1099-B was 29 pages and I have a relatively small Prosper account. In the below screenshot you can see I had a combined $93.41 in proceeds from charged-off loans. My losses totaled $834.71 which means I earned a net return of around $100 for the year.

Conclusion

The screenshots I’ve included in this blog post represent the high level details of the tax forms you receive. Both LendingClub and Prosper provide details on form 1099-B detailing at the loan level date purchased, date sold/disposed of, proceeds, cost basis, gain/loss etc. The explanations for each of these fields is provided in each of the tax guides. While the tax forms at first glance may be intimidating it is a relatively straight forward process once you dig into what the reported numbers represent and understand the difference in how interest and losses are reported. The provided tax guides go a long way in walking even the newest of investors through the process.

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Alan
Alan
Mar. 7, 2018 9:34 am

I’m not an accountant, but since Lending Club reports the basis to the IRS, according to the form 8949 instructions, it would seem that you don’t have to report individual note gains and losses on form 8949, but can simply report the aggregates on schedule D:

From form 8949:

“Note:
You may aggregate all short-term transactions reported on Form(s) 1099-B showing basis was
reported to the IRS and for which no adjustments or codes are required. Enter the totals directly on
Schedule D, line 1a; you aren’t required to report these transactions on Form 8949 (see instructions).”

“Note:
You may aggregate all long-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS and for which no adjustments or codes are required. Enter the totals directly on Schedule D, line 8a; you aren’t required to report these transactions on Form 8949 (see instructions).”

Vengopal Srinivasan
Vengopal Srinivasan
Mar. 9, 2018 11:11 am

Prosper does not even separate Short Term and Long Term gains and losses. They do not provide an Excel version that can be imported whereas Lending Club does. To make matters worse Prosper has “locked” the PDF version so that you cannot even select sections of the 1099 for conversion to a CSV ( comma separated variable) and copy them as text.

QVP1
QVP1
Mar. 17, 2018 8:27 pm

They did separate short and long term gains, but the form was not very clear at all. As you start from the first note and browse down, check the right hand column of each note, you’ll notice it indicates “short-term.” Continue browsing down through the pages until you find the first one that says “long-term.” At that point, you’ll notice a summary total for the short term notes. Again at the bottom, it will total the long term. Those two values equal the total reported in box 1d.

So yes they do provide the break-out, but the form was very poorly laid out.

Kit
Kit
Apr. 10, 2018 11:46 am
Reply to  QVP1

So as far as I’m able to see, they total the proceeds (box 1d) for each sales category, but they do not total the cost basis (box 1e) for each category. Are you seeing that number totaled anywhere?

Venugopal Srinivasan
Venugopal Srinivasan
Apr. 10, 2018 1:37 pm
Reply to  Kit

In order to file your return properly, because basis is not reported to IRS by Prosper, you need to list each note separately and provide information on its date of acquisition and date of sale. Even if the total of the cost basis is available ( by the way I don’t see it ) the dates associated with each note is different. Lending Club by reporting the basis to the IRS makes filing the return lot easier.

D. Yes
D. Yes
Nov. 18, 2020 1:51 am

ST and LT Totals are there. I was able to confirm but you have to really look for it.

You can find it right after the last short-term note is reported. You might need to scroll down many pages but it’s there. Search for the first long-term note and just scroll up to see the total for all short term sales.

Kai Chang
Kai Chang
Mar. 14, 2018 12:45 pm

Not separating the ST and LT gain/loss requires investors to go to each individual note and aggregate the data. Very tedious work for investors that have a lot of notes. I complained to Prosper (via their website) and the support person who was able to send me the breakdown. I would encourage everyone to contact Prosper, so they can avoid the manual work and push Prosper to change the report for next year.

Venugopal Srinivasan
Venugopal Srinivasan
Mar. 14, 2018 4:04 pm
Reply to  Kai Chang

They already informed me they cannot change their PDF file to unlocked mode!

QVP1
QVP1
Mar. 17, 2018 8:30 pm
Reply to  Kai Chang

They did break out the short term and long term totals, but the form was very poorly laid out. It took me a while to notice it myself. See above reply.

Kit
Kit
Mar. 22, 2018 7:01 pm

It should be mentioned that if you invest a lot in Lending Club and Prosper, the interest you get back could be offset by the taxes you pay. For instance, if you don’t have any Capital Gains to report (which the 1099-OID will not help you out with), the maximum amount you can deduct is -$3000. If your “Taxable Interest” number is high, but your deduction maxes out at 3k, you’re up shit creek.

For example, if you made $10,000 on your OID, but then on your B you had $8,000 in charge-offs, you’d wind up showing that $10,000 on the interest income and only be able to offset it with a $-3000 capital loss. As I see it this is a critical issue to consider when investing in LC/Prosper.

I think you should write about this on your blog.

Hank
Hank
Apr. 5, 2018 6:00 am

Prosper told me that they moved to a new vendor for the tax forms this year. It’s a disaster and will make me withdraw money from the company ASAP. The 1099-OID I calculated is 9k over the interest I received in 2017. So I’d be paying taxes for interest I did not receive!! Terrible. 🙁

Kit
Kit
Apr. 5, 2018 9:59 am
Reply to  Hank

Good luck “withdrawing money,” before your notes come to term.

Frustrated Prosper Lender
Frustrated Prosper Lender
Apr. 6, 2018 1:44 pm

So apparently Prosper did NOT report the basis for any transactions to the IRS, which means we have to list each one individually on form 8649? That’s ridiculous! There are hundreds of them, and no way to export them in a format my tax software can import…

Venugopal Srinivasan
Venugopal Srinivasan
Apr. 7, 2018 4:02 am

You are right – it is a pain. In the past the PDF version was not “locked” – so you could copy paste into Excel and then import it. Now it is locked. Prosper also overstated your returns for a long time and then corrected it with an apology! As one of the others pointed out the OID does not match what one actually receives as interest.

John
John
Apr. 10, 2018 9:36 pm

Prosper’s 1099-B lists two types of loans under the 1.a Description of Property. They list either 1) Debtsale or 2) Chargeoff. When it lists a debtsale it reports $0.00 in box 1e (costs basis). When it lists a chargeoff, it does report values consistent with the cost basis in box 1e. Furthermore, debtsales result in proceeds, while chargeoffs do not. However, even the chargeoffs should report some proceeds based upon partial payment before charge off, based upon the wide variance of the amount of the basis reported on 1e, I can only deduce that the proceeds have already been deducted from the costs basis (which turns the listed cost basis into the gain/loss result). The bigger problem, is that debtsales do not list any the cost basis, the fact that it does not means that either 1) no gain/losses can be found or 2) the investor is supposed to figure the cost basis number themselves. Any thoughts?

Venugopal Srinivasan
Venugopal Srinivasan
Apr. 11, 2018 10:23 am
Reply to  John

The debt sale is usually associated with a note that was previously “charged off”. During the charge off you would have realized a loss. So now the cost basis is 0.0. During the debt sale you recover some of the money that was lost during the charge off.

John
John
Apr. 11, 2018 2:05 pm

Yes, after I posted, I discovered that there were corresponding property description numbers between the chargeoff and debtsale. So that makes sense. Thanks much!

John
Oct. 23, 2018 2:22 pm

Insightful article indeed!
I must say that you have shared very profitable information.
You make some good points about how to fill taxes with LendingClub and Prosper for the 2017 tax year that I never thought about.
Thanks for sharing!

Arthur Epstein
Feb. 9, 2019 7:41 am

I am BIG TIME SORRY I got involved with Prosper.
This tax reporting nightmare makes whatever small income I got from them irrelevant.
Have stopped all regular investing and am draining funds as available every month..
Does anyone know if TurboTax IMPORT handles Prosper? Appears NOT to me.
THANKS for all other user input above!

Jesse
Jun. 3, 2019 2:05 pm
Reply to  Arthur Epstein

I’ve stopped all investments as well. No way to import from Prosper, but I can import my LendingClub information.

Mark Thomas
Mark Thomas
Feb. 5, 2020 1:09 am

I created a tool to convert Prosper 1099-B transactions to CSV format. It’s open source but requires you to install Java before you can run it. If anyone tries it out and runs into any issues or has any suggestions please let me know. https://github.com/MThoma202/prosper-1099-parser

Kai Chang
Kai Chang
Feb. 8, 2020 9:10 pm
Reply to  Mark Thomas

Hi Mark,
I was able to install the jdk and ran gradlew.bat in the prosper-1099-parser-master folder. But when I click on http:\\localhost:8080, the computer show that “The site can not be found”. Please advise.
Thanks,
Kai

Mark Thomas
Mark Thomas
Feb. 9, 2020 1:12 am
Reply to  Kai Chang

Hi Kai, I’m sorry it’s not working for you! Did you run the full command? gradlew.bat clientInstall bootRun

If it starts successfully you should see a bunch of log messages printed and then finally it will print a log message saying “Started ConverterApplication in x.xxx seconds” as the last message. If you instead see any error messages printed can you please create a new issue and copy-and-paste the log messages into the issue description? https://github.com/MThoma202/prosper-1099-parser/issues

Parker Johnson
Parker Johnson
Mar. 24, 2020 11:33 pm
Reply to  Mark Thomas

Mark,

Your code was hugely helpful. I had a 168 page 1099B pdf, which your program turns into about 631 rows. Thank you so much. Make sure to use jdk1.8! The download link from thee Readme defaulted to jdk 14 (Gradle barfs).

Thanks again…starred you from GitHub.

Kai
Kai
Feb. 9, 2020 1:47 pm

Hi Mark,

I ran the full command and now the program works perfectly. Thanks for the help.

Kai

Getting out of P2P
Getting out of P2P
Mar. 25, 2020 7:00 am

I stopped investing in Prosper because of this tax NIGHTMARE in 2018. The good news is that once you stop investing, after one tax year, most of your losses will be long-term, and breaking out LT vs ST losses will only take a few minutes. :-).

For the 2019 tax year, I only had 1-2 pages of ST losses to manually calculate.

What surprises me is that their main competition, LC, has an easy 1099-B to use. Why haven’t they changed vendors???

Good luck to everyone!

brian
brian
Jan. 13, 2021 11:39 am

I am looking to transition to Prosper now that LC is done. I’ll be curious if Prosper 2020 tax reporting is still a nightmare. Is Prosper still different than LC for how I have to list LT and ST losses?

Kit
Kit
Jan. 13, 2021 1:40 pm
Reply to  brian

Hey Brian,

Over the past few years I’ve actually just had to contact Prosper directly and they’ve provided me with a CSV that pretty solves this problem. It’s not built in but they can do it for you manually.

Justin
Justin
May. 14, 2021 1:18 pm
Reply to  Kit

+ 1 on Kit’s comment. Thank you! Saved me hours of hassle trying to extract the data from the PDF. Just shoot Prosper an email on the customer service web form in your account, and request a breakdown of your 1099-B. They will send the totals broken down by long term/short term box 1d and 1e in 3-row Excel file. Done. Thank goodness.