I understand from AmCap his discussions of OID, what it is supposed to be and what LC says it is from their prospectus. But for my charged-off LC loans, the Interest OID reported for these loans was actual interest received and did not include any accrued interest during the time that payments were missed by the borrower before the loan was charged. While this may be incorrect reporting of interest by LC, it sure makes it easier for reporting the charge-offs on my taxes. I don’t have to do any calculations per charged-off note to adjust the basis of the notes as was explained in another posting (was maybe by AmCap, not sure). That threw me off and had me scrutinizing every charge off carefully to figure out the actual interest received versus the interest OID reported by LC, on both the original and revised OID forms issued. Basically, LC did not include accrued interest and I then figured out that they had deducted the service fee from the interest before reporting it as OID. Maybe this is why LC is reporting OID this way- to save us a lot of work on calculating the amount of charge-offs to deduct for taxes. Maybe technically they should not be doing this, but I, for now, am glad they are. Now that I understand all this, hopefully next tax year will go a little smoother.
Perhaps what they should be doing is correctly reporting OID with accrued interest, then for charge-off loans issuing lenders a report with each charge-off adjusted by accrued interest (this would be a bear for us to figure out for every charged off note) so we have a accurate listing of the losses to report on Schedule D. We would be allowed to deduct this accrued interest because it had been included it as taxable interest OID, maybe in the same tax year or the prior tax year. Anyway, as time goes on perhaps the tax reporting will become simpler and more understandable. And big thanks to Peter, for taking the effort to explain the tax forms for both Prosper and LC.
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