As tax time quickly approaches, the annual question of how to report income from peer to peer lending investments comes up with little guidance from either Prosper or Lending Club. However, for the first time, Lending Club has put together a five-page tax guide explaining their soon to be released tax forms. Below I will touch on some of the highlights of those forms with a link to the guide at the end of the post.
Before I go forward, please note that none of the information below can be construed as official tax advice and is simply my interpretation of Lending Club’s tax guide and my experience from previous my own personal tax filings. Consult your tax advisor as to your own personal tax situation.
Lending Club will be issuing a Consolidated 1099 in 2013 that will include all of your taxable income activity for both your Lending Club and Foliofn accounts. Each investor’s tax packet can contain up to three forms for their Lending Club account and one for their Foliofn account. In addition to providing the IRS mandated information, Lending Club will also include details of charged-off loans (which can be taken as short-term or long-term losses). These Consolidated 1099 statements will be available by January 31, 2014.
Lending Club Tax Information
The first of the three Lending Club forms within the tax form packet is the 1099-OID, which contains the net interest received, late fees, and recoveries of unpaid interest from previously charged-off loans, less servicing fees. This number is aggregated from all notes held in an account and is reported as interest income on Schedule B of your personal tax return as taxable interest income.
The second of the three Lending Club forms is the 1099-MISC, which contains any other income from Lending Club such as referral bonuses or any other incentives. This income is reported as other income, normally passing through to line 21 on Form 1040 for individual filers.
The third and last of the three Lending Club forms is the 1099-B, which contains any proceeds or recoveries on previously charged off loans. This form contains several pieces of information as required by Form 8949 and/or Schedule D, such as date of sale, date of acquisition, type of gain or loss, sales price (recoveries less fees), and loss not allowed. Not everyone will have the same information provided.
I should note here that Lending Club does not submit cost information to the IRS; therefore the 1099-B will not provide any cost basis. Considering this 1099-B is reporting any additional recoveries on already charged-off loans, I would anticipate the cost basis to be zero anyways and this is a non-concern for me.
Foliofn Tax Information
For Foliofn, one form is provided, a 1099-B which reports the proceeds from the sale of notes on Foliofn, and is reported either on Form 8949 or Schedule D. The same detailed information that can be found on the 1099-B for Lending Club is found for Foliofn transactions. These include the date of sale, date of acquisition, type of gain or loss, sales price net of trading fees, and loss not allowed.
Again, as with the Lending Club 1099-B, Foliofn will not be reporting the cost basis to the IRS on the 1099-B. However, in the prior year, my 1099-B from Foliofn included the principal balance at the time of sale, which is in effect your cost basis (unless the note was purchased on Foliofn).
Supplemental Information – Charged-Off Loans
Unlike in previous years, Lending Club will be providing a supplemental schedule detailing the charged-off loans for 2013. Depending on your individual tax situation, you may or may not be able to deduct these as capital losses on Form 8949 and/or Schedule D. The information to be provided on this schedule will be as follows:
- Date of sale (charged-off date)
- Date of acquisition
- Loan principal balance at charged-off date
- Whether the note is a new issue or secondary market acquisition
- Original purchase price
- Premium or discount from secondary market acquisition
- Principal balance net of secondary market premium or discount
This additional supplemental schedule is going to be a tremendous time saver for those with large taxable accounts. I am quite glad that Lending Club is providing this information as it will be a great help for those who acquire and/or sell notes regularly on the secondary market that end up getting charged-off.
My Thoughts on the Tax Guide
After many years of no help, and very little guidance from the limited frequently asked questions on Lending Club’s site, this tax guide is a welcome resource to help guide folks through the understanding of where information is getting reported. While Lending Club cannot offer specific tax advice due to legal concerns, this guide is clear enough to help those folks filing their taxes at home to get a good grasp on what is required.
For me personally, this guide has confirmed my tax treatment of my Lending Club income. The supplemental schedule detailing charged-off loans offers investors the biggest value from Lending Club’s tax reporting. For those with large taxable accounts, not having to go back through 12-months of account statements to aggregate this information will be a big time saver.
Below you will find the recently released tax guide from Lending Club and a link to their online frequently asked questions online resource:
What are your thoughts on the tax guide or peer to peer lending tax reporting? Any questions or concerns with tax issues and peer to peer lending?
Flickr: 401(K) 2013