[Disclaimer: The following is general information regarding taxes that may apply to p2p lending. NSR Invest does not provide tax or accounting advice. Please consult your tax professional for questions specific to your portfolio or investing goals]
If your p2p investments are held in a taxable account, interest income is reported as ordinary income and charged-off loans are typically reported as short-term capital losses. Investors may use charge-off losses to offset realized capital gains and take up to an additional $3,000 in short-term losses to be applied against your ordinary income. Losses in excess of the $3,000 limit may be carried forward to the next year.
It is for this reason that peer to peer lending may be a good fit for a tax-advantaged account in your portfolio - especially if your investment objectives include higher risk loans or your portfolio is sizeable.
Most marketplaces support Traditional, Roth, SEP, and SIMPLE IRAs, as well as 401k rollovers.
Notes that you may buy or sell on a secondary market and investor incentive bonuses are reported differently, and may vary dependent on the marketplace.