Lending Club – Tracking My Taxable Account

As I mentioned in my initial peer-to-peer lending post, my first Lending Club investment, a taxable account, was opened in the spring of 2009. Having held this investment for almost four years, I have recently been at a crossroads with what to do with this account. Last fall, I made the decision to start to close this account as I knew I was going to be rolling a portion of my Roth IRA into a Lending Club account. As a result, I sold of most of the notes in the secondary market, giving me a full taste of all the pain, struggles, and profits to be had there.

Currently I have just about $1,100 in my taxable account and have decided that I will not be selling off the remaining loans, and will begin tracking this account on the blog alongside of my Roth IRA account. This decision comes after some wavering as to the best use of these funds, as well as frustrations with the tax reporting by Lending Club. Having developed some additional confidence in the reporting, as well as the added motivation provided by this blog, I have ultimately decided to keep the account open.

With an expected and hopeful return of 10% for this account in 2013, my goal is for it to generate net interest income of approximately $120 per year. Net interest is all interest earned net of any fees, charge-offs or defaults of notes in the account. My original 2013 Lending Club passive income goal was $1,000 for the year. As a result of adding my taxable Lending Club account, this raises my net interest goal $1,120, and brings my total passive income goal for 2013 to $2,120.

A quick summary of my taxable Lending Club account as of January 31, 2013 is below:

Account
Balance
12/31/12
Balance
1/31/13
Net Interest
Period
Net Interest
TTM
XIRR Return
LC NAR
LC - Taxable
$1,082.37
$1,096.45
$14.54
$231.78
10.22%
11.98%

Please note the trailing twelve month (TTM) interest is artificially high when compared to the current balance due to the note sell-off I had in the second half of 2012.

My Lending Club and Goals pages have been updated with this addition.

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Comments

  1. Just curious if you considered Prosper. Prosper is going through some rough times at the moment, but I’ve been with them longer than Lending Club and have done pretty well. Their Quick Invest feature is nice. It automatically buys loans, reducing my time commitment to their platform. I find myself logging into LC daily, but only about once a week for Prosper.

    • When I first started investing, this was shortly after the dark times, and Prosper was in their quiet period as they registered with the SEC. Since I liked the business model of Lending Club better at the time, I started with them. I will absolutely open a Prosper account, I just don’t want to allocate the funds there at this time. More than likely in the next 12-18 months I will open an account there.

  2. Have you looked at the tax treatment of your LC income?

    Are you reporting all of the OID interest as regular interest income, and the loan writeoffs reported on your year end summary as capital losses? Have you calculated your after tax return?

    Upon reading the prospectus, it appears to me that LC has done the rather unclever trick of converting capital losses into regular income. The after tax consequences of this are extraordinarily negative.

    • Thanks for commenting Boatguy!

      At this time I am following a very similar method to the one Peter laid out here: 2013 Lending Club and Prosper Tax Guide

      While I am not a tax expert, I reporting my interest received as regular interest income and deducting my write-offs as capital losses. In addition, I am reporting the net gains from my note sales as long or short-term gains, which will be offset by any losses. At this time I have not calculated my 2012 after tax return on investment.

      I think both Lending Club and Prosper have a ways to go in determining the appropriate reporting as it relates to what is described in their prospectus. They are far from perfect in this regard and have ample room for improvement.

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