I’m long overdue for an update on my Prosper lending.Â Things have been going pretty slow, but not through my own doing.Â Prosper has been slower than usual.Â Even though I’ve been reducing my lending in order to fund my Roth IRA, I have 8 loans pending approval.Â I think the holidays might be an issue since some of them were bid on before Christmas.
That said, of my 61 loans, I have a high number (3) of people who haven’t paid in 3+ months.Â This isn’t that surprising to me as I have quite a few E credit loans.Â What is surprising is that two of them are C lenders and one is a D.Â That defies the percentages.Â These people aren’t complete deadbeats, they have paid me in the past.
Other than the above, things are going great.Â With an average interest rate of 23.55%, I’m still doing quite well overall.Â It’s hard to do exact math on the returns as I’m always adding in new funds.Â I’m at the point where I’m able to add a little more than one new $50 loan each month.Â Psychologically, it is a huge motivator to see the compounding in action.
How is interest earned taxed in the US?
Lazy Man says
I’m anything but a tax expert (I have to say this before I answer any tax question)…
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.
The Travelin' Man says
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 says
Traveling Man, from Prosper’s website:
“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.