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A Guide to Filing Your Lending Club and Prosper Taxes

by Peter Renton on March 12, 2012

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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{ 15 comments… read them below or add one }

CA-Lender March 12, 2012 at 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.


Pentagron March 13, 2012 at 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!


CA-Lender March 13, 2012 at 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 March 13, 2012 at 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.


CA-Lender March 13, 2012 at 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.


Peter Renton March 13, 2012 at 4:51 pm

@CA-Lender, It is great to hear from an accountant about this so thanks for chiming in. Until the IRS issues some guidance my guess is that 95% or more of LC investors will be reporting their taxes wrong. As you say, the accountant will take the 1099 and usually not inquire further.

@Charlie, I have heard many people complain about taxes at LC and Prosper. But once you have done it properly once, it is really not that difficult to put together. A couple of hours and I was done. I am happy to do that to receive the great returns here. And most people will just hand their accountants the 1099 and be done with it. Still, investing through an IRA is always the best way to go if possible.

@Pentagron, I actually go one step beyond what CA-Lender suggests. I export a CSV file of my defaults and print this off to include as supporting docs for Schedule D. It is probably overkill but it is not difficult to do if you keep track of your defaults.


CA-Lender March 13, 2012 at 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.


Pentagron March 14, 2012 at 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


Peter Renton March 14, 2012 at 1:59 pm

@CA-Lender/@Pentagron, Let me clarify about the 1099-B. My understanding is that you will only receive a 1099-B if you have made transactions on the trading platform. I am referring to entering my defaults on Schedule D as capital losses – this is separate to the entry of the amounts from the 1099-B.


Moe March 14, 2012 at 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.


Thacaro March 15, 2012 at 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.


storm March 17, 2012 at 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.


Peter Renton March 18, 2012 at 7:01 pm

@Moe, For people who have sold a large number of notes on Folio I could see how this could be a huge time drain to do accurately. I only sold a handful of notes, so I am just using the numbers they provide on the 1099-B.

@Thacaro, Wow, that is a heck of a detailed way to do it. I can tell you that with 500+ notes I am not going to be working out my accumulated interest on every loan as of December 31st. That is just too much work and something that Lending Club really should provide. And as for your step 6, your wording is good but I would not do a separate page for each default but list them in a table. I had 31 defaults during the year and so I am sure the IRS doesn’t want 31 separate pages.

@Storm, That is the key to make things simpler. Get this data into a spreadsheet so you can manipulate it there. If you can’t do a Perl script then there are PDF to Excel converting software out there.


Mark March 20, 2012 at 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 (/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..;-)


Tyrel March 21, 2012 at 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.


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