“Lenders are encouraged to consult their tax advisor to determine their tax basis on default loans.

Delinquent (late) loans which have not yet been sold to a debt buyer will have no impact upon taxes until further action on these loans takes place.”

As of now, I have no loans in default. Though I have three that 3 old, Prosper isn’t saying they are a lost cause yet.

I have a question for you regarding your Prosper loans. Did you have any loans in 2006 that you consider to be written off and never paid? If so, how will you handle this for your 2006 tax return?

This question may be a little premature, given the relative youth of the Prosper site. Still, I assume that some loans will not ever be repaid, and there has to be a way to write off the losses from these loans, I would think. If there is not, it would seem to me that you would need to make an even higher rate of return to further mitigate your risk. Otherwise, being able to reduce your income by whatever capital loss you would have from selling stock (for instance) would seem like too big an advantage to pass up to risk the higher returns in Prosper loans, no?

Lazy man over at Lazy Man and Money has been dabbling pretty heavily in Prosper.  So far, he’s seen a 23.55% return on his money – that’s fantastic.  So why don’t I have a Prosper account set up yet?  Well, for starters, it scares …

It’s taxed as regular income. Overall it’s not ideal as divedends are taxed at a better rate (usually 15% from what I understand), but I always say that I’d rather pay 25% tax on a 15% gain vs. 15% tax on a 10% gain.

FT
http://www.milliondollarjourney.com