As a matter of policy, Prosper generally charges-off all loans that are at least 120 days past due (“charge-offs”). In certain cases, Prosper may recover a portion of the principal, interest, or late fees associated with a loan that was charged-off in a prior year (“recoveries”). Finally, Prosper may sell charged-off loans to a third party (“debt sales”).
Charge-offs, recoveries, and gross proceeds from a debt sale to a third party will be reported to investors in a year-end investor statement and on tax form 1099-B. In the case of a debt sale, the sales price can be compared to the cost (or other basis) to calculate the net amount of gain or loss. The summary table at the bottom of the Form 1099B provides short- and long-term data. Investors are encouraged to review the tax guide that Prosper publishes each year at the time the tax forms are issued to investors and, consult their tax advisor to determine their tax basis on loans sold to debt buyers.
Delinquent (late) loans which have not yet been charged-off or sold to a debt buyer will have no impact upon taxes until further action on these loans takes place.