I did include those two little sales for losses so they are documented in the schedule D. I did my taxes every which way. I got married last year and I am now experiencing the marriage penalty: Two wage earners that make decent’ish money. I haven’t had to take the standard deduction for ever and now my mortgage insurance, donations, property tax, sales tax, energy efficiency changes on house, etc all adds up to barely less than the standard deduction. I did my taxes for my wife and myself for 2011 (while we were single) and it is quite a difference between two single earners and our 2012 merged taxes. We did make more in 2012 but not that much more. Oh well, we are doing our part as good Americans.
Sorry for the side-tracked conversation. To bring it back, just transferred my February allocation to LC.
I just stumbled across something called a wash sale exclusion, which is when you sell something at a loss, then repurchase the same (or almost identical) stock within something like 30 days. It’s intended to keep people from selling something to lock in a loss then immediately repurchasing the same stock.
The idea is, if you buy stock for 1000 dollars and sell for 800, you have a capital loss of 200 dollars. Then you buy that stock right back for 800 dollars. You still own it, but you record a capital loss.
With the wash-sale rule, you can’t claim that loss. Instead, the loss is added to the basis of the new stock. So if you resold that stock later for 1100 dollars, your basis is not the 800 you paid for it, but 1,000 (the purchase price plus that wash-sale loss). So your gain in that scenario isn’t 300, but 100.
How this applies to something like Lending Club, where you’re purchasing different loans, I don’t know. For example when I sold loan 000001 for a dollar loss, then a few days later invest in a new note, do I consider that to be a wash-sale scenario? I’m going to say no, since it really is a different loan. Core_dump, one might argue that you do need to worry about that since you’ve repurchased the same loan.
Yeah the wash sale rule can be a thorn in one’s side when trading stocks at least. From memory I believe the wording is “substantially the same” security. Brokers track this for you but the thing is in practice it’s only applied to exactly the same security. So I could trade SPX (floor traded S&P 500) and then turn around and trade SPXPM (the electronically traded version of the exact same thing) and get around it.
For LendingClub I’d say that definitely does not apply in most cases because they’re not even close to being substantially the same risk. Maybe if two of your notes happen to belong to the same loan. Wash sale is always detrimental to the investor, never beneficial, so unless your statements say wash sale I wouldn’t even go there.
If you’re treating trading as a business the wash sale rule does not apply to you. You can also use mark-to-market accounting. (This would be closer to what I was getting at with taking your starting/ending account values for the year.) But then you have to pay social security on top of your tax rate instead of just the capital gains rate… no thankee.
How’s this for the ultimate wash sale: When the sale and repurchase happens in the very same trade!
You need two LendingClub accounts, a regular taxable one and a Roth IRA. Say you have a fresh $25 note in your taxable account. Late at night (don’t try this at home kids, it’ll get snatched if you don’t take precautions) you post that note for sale for $0.01 and immediately buy it using your Roth account. Do this hundreds of times.
In your taxable account you just took a hefty loss and get to deduct that. Your Roth just had a massive gain, unrealized, but it doesn’t matter because it will never ever be taxed. Since you can withdraw your own contributions from a Roth without penalty you can suck the money out, redeposit into your taxable account, and start the whole cycle over just one time if you’re short on cash. You don’t even lose any to FolioFn fees because 1% of $0.01 is zero.
Effectively you now have a Roth IRA for which contributions are deductible (huge plus! unheard of) and now you have a way to bypass the contribution limits and fund your IRA to unlimited* levels. All tax free. Not even any taxes on the back side since it’s a Roth. This is such a goldmine it should be a crime.**
There might be a flaw in my logic somewhere, but it seems like a great deal to me. It’s on my todo list for this year.
Limited only by your capital gains + 3k, and arguably with carryover it really is unlimited.
** It probably is, technically.
Hah!! Sneaky (and yes, it probably is illegal). Also, won’t work. Someone else might snag that ultracheap note - that’s how I lost 10 bucks on a sale (posted something for 16 bucks vs 26 - saw it just as I clicked “OK”, and by the time I could try to change the price, someone else had snagged it. I mean, quite literally within 3 seconds.
For what it’s worth, Ithink the limitation on withdrawing Roth money is that it has to be there for x years. Say you put 2,000 in the account in 2006 and every year thereafter. Then in 2011. you can withdraw that 2,000 (but not its income, unless of course you’re over 59 years old). So unless you put a whole lot of money in a Roth 5+ years ago, there’s a built-in limit.
BTW - I popped in to tell the gang that if anyone is using my spreadsheet for creating their TXF file, I had the codes reversed. 711 is short term, 713 is long term. I’ve updated that shared copy (I think…). I noticed this when I was reviewing my return, and realized that I was showing a short-term gain when I was pretty sure the opposite was true.
Easy enough to fix; I just killed the imported data (which is easier to do than it used to be), fixed my file, and reimported.
That time limit applies to earnings. You can withdraw your contributions at any time (there are people who suggest using a Roth IRA as your emergency fund). Of course, the “scam” being discussed would result in contributions worth virtually nothing, so there would be minimal contributions that you could withdraw.
I had quite literally JUST FINISHED REVIEWING our taxes and we’re ready to submit.
Now, in my case, the 2012 recoveries were less than two dollars and I think they were reflected in the OID (at least, the sum of that was a dollar or so more than the interest on my 12/31 statement). Still, it’s annoying as hell.
On an unrelated note: I was crunching my son’s tax numbers (no real income, just some stock sales from the account we had set up for his tuition)… and one of the 1099s won’t be available until 2/15.
Here’s the latest issue of core_dump’s Sneaky Schemes, delivered right to your mailbox but no longer on Saturday. Today we will keep it 100% legal.
Take out a LendingClub loan as a borrower. Intentionally do not pay the bill on time and let it go into grace status. These notes easily sell for 20% discount or more. Buy all of them that get posted for sale, after all, you know that you’re going to pay it. The 14th day before it goes into late status, make the payment to bring it current. Now sell the notes for a healthy profit. If you can’t find buyers at a good price pay the loan in full. Repeat each month.
This is like betting on the horse after you already know who won. 20% return each month isn’t bad. Actually since you didn’t put up any of your own cash it’s all profit, not even a rate of return.
That idea alone is worth what you paid for it, but to make sure you get your money’s worth here’s a bonus:
For even larger profit you need to manipulate your FICO score. This is only easily done if you have low total credit card limits, say <$5k in all. Max out all of your cards temporarily, heck even buy a case of dollar coins from the mint if you have to. A note in grace status with a huge credit score drop sells for much cheaper, obviously.
Other ways to really drop the price:
Start an LLC which subscribes to TransUnion/etc and report a bad debt on your own file. You can easily delete it as an error later. I don’t know what these subscriptions cost. Actually sign loan papers to keep it legal.
Call them up and give them bankruptcy counsel info, without filing BK of course. 90% discount right there when it shows in the collection notes. Then pay in full. This would likely only work once.
To keep opening loans without hitting your credit report with inquiries you can take out the second one while the first is still open. The hit might come in as an account review which doesn’t count. Even if not, as long as you don’t need credit in 12 months, who cares? Lower credit score == bigger profit.
I think that covers it. Stay tuned for next week when we will sell church insurance to little old ladies.
Just got my updated 1099-OID and 1099-B (for the two recoveries).
Yep, they moved 23 cents from one loan, and 93 cents from another, from interest to long term gain.
Yes, you got it right: a dollar and sixteen cents will now be treated as long-term gain rather than interest, and therefore taxed at the lower long-term gain rate. 15% versus 25% (or whatever my marginal rate is). I’m saving 10 whole percent. Yah - 11.3 cents.
I’ll try not to spend it all in one place.
A question: For folks who have received a 1099-OID: are you reporting every line separately or just as an aggregate? It occurred to me that maybe I oughta do the details, when I’d originally done it as an aggregate. Of course reporting the details means finding the damn code to make the TXF file parse correctly…
I spoke with someone at LendingClub today who said they may be going public in the near future. If the IPO does in fact happen, he says regular investing will then be open to people in all states. What one has to do with the other is beyond me, but I found that interesting.
The regular interest? As far as I know you only need to file a schedule B and separate all that out if you received more than $1500 for the year (which also includes dividends). Which I guess isn’t exactly a hard limit to hit on LC once you’ve got a modest amount invested. But even then you only have to separate out the payers, which would still be just a single entry if you don’t have any other interest bearing accounts or dividend paying stocks.
Or were you talking about something else entirely?
I came in under the threshhold this year but I don’t think I would have even thought to check on my total amounts if you wouldn’t have said something. Thanks.
I spoke with someone at LendingClub today who said they may be going public in the near future. If the IPO does in fact happen, he says regular investing will then be open to people in all states. What one has to do with the other is beyond me, but I found that interesting.
The regular interest? As far as I know you only need to file a schedule B and separate all that out if you received more than $1500 for the year (which also includes dividends). Which I guess isn’t exactly a hard limit to hit on LC once you’ve got a modest amount invested. But even then you only have to separate out the payers, which would still be just a single entry if you don’t have any other interest bearing accounts or dividend paying stocks.
Or were you talking about something else entirely?
I came in under the threshold this year but I don’t think I would have even thought to check on my total amounts if you wouldn’t have said something. Thanks.
Nothing much here. I finally unloaded a loan that had started going bad in late December; wound up discounting it about 80% or so to get rid of it. At least I won’t have to deal with the accounting impact of recoveries.
I spotted another one, last night; using the ‘4 business days’ rule, it should have completed its payment but had not. And the FICO had been dropping, 30-40 points just this month. I was able to unload it overnight for a few pennies more than current principal; with the fee it’ll be a net loss for the month but a net profit overall; I’ll net roughly the principal minus the current month interest, so I’m still ahead of the game.
Also unloaded my two E-class loans. They’d both been doing well, and in fact both loans’ FICOs had risen several slots, but they made me nervous anyway (mainly because of the general default rate, nothing about those loans in particular). Surprisingly, it took a while to sell them both despite the long-term good prospects.
I had a D-class loan that was also making me twitchy; it was current but the scores were inching down; I sold it for a very small profit.
Other than that, just buying-and-holding for the most part. I have 75 current loans plus a handful more in funding. Net annualized return per LC is a bit over 10% but of course that doesn’t account for the loans sold at a loss. That one bad loan last month wiped out my interest for the entire month plus a bit more.
I’m going to try to be more proactive about watching things and listing them for sale; right now I tend to forget about it for a few days. With the end result that (as in December) I miss something until it’s very definitely and visibly going south, or I have cash piling up in the account, uninvested.
A few days ago I came across a note that was heavily discounted to the point it must have been a mistake on the seller’s part. (Sound familiar?) It was either a typo or mental illness. I bought it. The next day morning the trade was busted with the usual cancelled message even though the payment date wasn’t anywhere near.
Obviously the person called in to complain and LC/Folio gave it back to them. It would seem LendingClub enforces its own rules selectively, based on how loudly you whine or how much you have invested (this was a $larger note). Something about that doesn’t sit well with me. They told you it wasn’t possible to cancel things, but obviously it is. Just depends on who you are I guess.
Nothing too interesting on my end. No defaults lately, so that’s good.
On average, I buy 3 notes a week, and my current Net Annualized Return rate is 7.87%, so that’s pretty steady too.
I find it somewhat amusing, not to mention frustrating, that I’ve been a member of LC since October of 2010 and have already had 32 loans fully paid. 32!
It is almost exactly two years since I started with Lending Club. I invested $1,000 in March 2011 and a further $5,000 in March 2012. I use a passive approach - I do not monitor for non-performing loans. I invest and reinvest according to a saved filter - I do not research individual loans; if it gets through my filter, it is in.
Lending Club is reporting a 9.70% annualized return (Quicken says 11.65%) and I have $6,648. I have had 371 notes, of which:
[ul]
[li]315 are current[/li][li]40 are fully paid[/li][li]1 is 16 - 30 days late[/li][li]4 are 31 - 120 days late[/li][li]11 are charged off[/li][/ul]
I am now getting about one default per month. I get about $69/month interest, and lose about $21 on average to a defaulting loan.
I spoke too soon. I now have a loan 1 - 15 days past due. I just put it on the market for a 10% discount. I don’t know if that’s enough. I guess I’ll see in a few days.
I’m new to LC but trying to get up to speed quickly. Background - living in PA, have to trade on secondary market. (FolioFn). Have a few $K in notes already, but still trying to separate the wheat from the chaff.
I have some questions that I hope folks can provide some quick insights on:
Why are there so many bad loans approved by LC? Example: Loan consolidation when the LC rate is sometimes WORSE than some of the cc debt being consolidated. Loans where somebody was at 85%+ of their max revolving credit. Large 3 or 5 year loans (20K+) when the person only made $50-60K / year.
Are the loans on FolioFN the dregs of what’s available on the primary market? Seems like a lot of the loans look like primary lenders trying to ‘dump’ problems.
If I can ‘hypothetically’ identify the original lender, is it illegal to contact the deadbeats? (I’m talking about illegal from from a legal perspective, not a LC POV.)
LC doesn’t know what the borrower’s original rate was. That info comes out in the Q&A after the fact. As for why a borrower would accept that, could be any number of things. They don’t have to deal with the CC companies anymore. Their util will instantly drop to 0% and maybe they need to boost their score for some reason. Or maybe they’re just fooling themselves into thinking they actually did something about their debt. I love seeing all these loan descriptions when they say “debt free”. Moving debt from one place to another is hardly being debt free.
Those wouldn’t be dealbreakers in my book. The only difference between an 85% util and a 15% util is another credit card application, perhaps. If LC filtered out all loans that somebody, somewhere might have a problem with then there wouldn’t be a whole lot available
Yes and no. You’re only seeing the ones that haven’t been sold, so of course these could be described as the “dregs” I guess. If you checked for new notes several times a day you’d stand a better chance at picking ones up with no problems. Good ones disappear quickly.
On the other hand, some buy-and-hold investors need a reason to screw around with the trading platform so those folks may only sell problem notes. Or when they get sick of LC (or need the money out) they dump their entire portfolio at once. But there is always a good supply of problem-free notes if that’s what you want.
Even if I didn’t live in a trading-only state I think I’d still buy all my notes on the trading platform. Which would I rather spend money on: A brand new note with no payment history and have to pay full price for it? Or one with a 6+ month perfect payment history, and maybe even get it at a small discount? Just takes patience.
Awww, please tell me you wouldn’t actually call someone and harass them over 25 bucks. Legality would depend on what you said, I would think. You don’t actually own the debt so they don’t owe you anything. If you didn’t run afoul of the FDCPA maybe you could get by. You’be acting as a collection agent for LC without pay. If this is fun to you seems like it would be more profitable to buy some accounts from a debt broker and do it for a living.
I remember posting upthread about one loan I saw, where the would-be borrower would wind up paying more - both in terms of absolute interest rate, and monthly payment, than if they stuck with their current loans.
I took that as a huge red flag, Either they were genuinely that stupid, or they planned to stiff Lending Club lenders, or something.
Re debt free: well, if you go with the assumption that the plan is to pay down the LC loan in the 3 (or 5) years, which might be faster than their current scenario, then I can’t quibble that much.
I’m one of those buy-and-hold investors who doesn’t sell loans easily. So yeah, something I’m selling stands a fair chance of being a risky loan. I sold one the other day at a discount (not much of one, just a few cents under the current principal + interest) because it had gone into its grace period. As it happens, the payment processed a day or so after the sale so the buyer got the payment, which is cool.
I also noted a loan going bad the other day (payment due on the 2nd, which should have completed the 8th). I listed it at a small discount even before it went to “grace period” status but it hasn’t sold yet. I’ll mark it down a penny or so every few hours until it sells or gets a payment.
I just put it on the market for a 10% discount. I don’t know if that’s enough. I guess I’ll see in a few days.