Author Topic: Opposite of tax-loss harvesting to improve tax efficiency of P2P?  (Read 12677 times)

Half Right

  • Jr. Member
  • **
  • Posts: 89
    • View Profile
    • Email
Re: Opposite of tax-loss harvesting to improve tax efficiency of P2P?
« Reply #15 on: December 18, 2015, 12:52:55 PM »
the income and the expense flow out separately.
the income comes out as "other portfolio income" and the expenses as "other portfolio expenses".
in this way the accountants sign off on the return and you have the headache of deciding how to pick it up.
if you decide to pick it up as a business you may subject yourself to Social Security taxes on your "Net Income from Self Employment"

Fred93

  • Hero Member
  • *****
  • Posts: 2142
    • View Profile
Re: Opposite of tax-loss harvesting to improve tax efficiency of P2P?
« Reply #16 on: December 18, 2015, 05:28:01 PM »
Here is what I don't quite understand regarding the tax issues and I'll admit I'm new to P2P investing.  Most of the information I've read (including this site and these boards) recommend not investing more than 10% of your portfolio in P2P. ...
So realistically unless you are investing the majority of your portfolio in P2P which is certainly risky for such a new vehicle you will likely generate enough capital gains to offset your P2P losses.

Seems to me that you understand perfectly.  People just complain too much, and or write endlessly about trivial things to fill up blogs, etc.

I generate an ongoing stream of capital losses from my failed loans, but I fully expect to have capital gains from other investments, which allow me to "use" the capital losses.  Those cap gains are lumpy, but I just roll with that.  If doesn't happen this year, the capital losses roll to next year, etc, so are never lost.


brloans

  • Newbie
  • *
  • Posts: 6
    • View Profile
Re: Opposite of tax-loss harvesting to improve tax efficiency of P2P?
« Reply #17 on: December 18, 2015, 09:08:37 PM »
the income and the expense flow out separately.
the income comes out as "other portfolio income" and the expenses as "other portfolio expenses".
in this way the accountants sign off on the return and you have the headache of deciding how to pick it up.
if you decide to pick it up as a business you may subject yourself to Social Security taxes on your "Net Income from Self Employment"

This is interesting. If I form a C corp with 7 other people, and comply with all of the rules for the business, could the IRS challenge the business income reporting and say thay we should be taxed as a flow through entity?

Anticipating some thoughts, I might end up paying taxes at a higher rate at the corporate bracket right? Makes me think of what is the feasible portfolio size to make a C corp worthwhile.

AnilG

  • Hero Member
  • *****
  • Posts: 1089
    • View Profile
    • PeerCube
Re: Opposite of tax-loss harvesting to improve tax efficiency of P2P?
« Reply #18 on: December 18, 2015, 09:22:57 PM »
C Corp is double taxation entity. You will pay tax twice, once at corporate level and then at individual level if Corp issues distributions to shareholders. All income, expenses, losses, and gains stay in Corp. All distributions to shareholders are taxable at individual level.

There are reasons you see hedge funds and real estate deals as partnerships and not C Corp. Instead of trying to come up with cockamamie structure follow their lead. If you got lots of money, engage proper corporate, legal and tax professionals.

This is interesting. If I form a C corp with 7 other people, and comply with all of the rules for the business, could the IRS challenge the business income reporting and say thay we should be taxed as a flow through entity?

Anticipating some thoughts, I might end up paying taxes at a higher rate at the corporate bracket right? Makes me think of what is the feasible portfolio size to make a C corp worthwhile.
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

investny

  • Jr. Member
  • **
  • Posts: 87
    • View Profile
Re: Opposite of tax-loss harvesting to improve tax efficiency of P2P?
« Reply #19 on: December 20, 2015, 03:01:07 AM »
Did anyone try using either S corp or LLC for P2P investments?

jpildis

  • Full Member
  • ***
  • Posts: 158
    • View Profile
    • Email
Re: Opposite of tax-loss harvesting to improve tax efficiency of P2P?
« Reply #20 on: December 20, 2015, 09:51:28 AM »
One could make a very strong argument that P2P notes are Contingent Payment Debt Instruments.  LC believes they are not, but that's a self serving conclusion.  If you read the definition, p2p notes are very close.  The accounting gets a bit complicated (probably what LC doesn't want that treatment), but you treat capital gains and losses as ordinary income that can off-set the OID interest.

This is not tax advice and I'm not a tax guy... just one taxpayer's opinion.

bobeubanks

  • Sr. Member
  • ****
  • Posts: 273
    • View Profile
Re: Opposite of tax-loss harvesting to improve tax efficiency of P2P?
« Reply #21 on: December 20, 2015, 01:11:45 PM »
One could make a very strong argument that P2P notes are Contingent Payment Debt Instruments.

I'm not a tax lawyer but I've seen that claim before but I don't see any basis on the logic for it.

To my knowledge, the IRS does not actually define what a CPDI is, but it does give examples such as being of indefinite maturity, tied to foreign currency loans, and being subject to acceleration, et. al. None of the examples seem to me to be applicable to P2P notes.

I believe your logic is that payments are contingent on LC receiving payments. But the IRS notes: "payments are not contingent merely because of the possibility of impairment by insolvency, default or similar circumstances." I think any contingency on a P2P note falls withing that, and thus are not CDPI.

jpildis

  • Full Member
  • ***
  • Posts: 158
    • View Profile
    • Email
Re: Opposite of tax-loss harvesting to improve tax efficiency of P2P?
« Reply #22 on: December 20, 2015, 02:39:12 PM »
One could make a very strong argument that P2P notes are Contingent Payment Debt Instruments.

I'm not a tax lawyer but I've seen that claim before but I don't see any basis on the logic for it.

To my knowledge, the IRS does not actually define what a CPDI is, but it does give examples such as being of indefinite maturity, tied to foreign currency loans, and being subject to acceleration, et. al. None of the examples seem to me to be applicable to P2P notes.

I believe your logic is that payments are contingent on LC receiving payments. But the IRS notes: "payments are not contingent merely because of the possibility of impairment by insolvency, default or similar circumstances." I think any contingency on a P2P note falls withing that, and thus are not CDPI.

That IRS note is to rule out normal debt instruments which p2p notes are most certainly not.  LC explicitly links these notes to another instrument that we are not a party to, seem like the very definition of a CPDI.

AnilG

  • Hero Member
  • *****
  • Posts: 1089
    • View Profile
    • PeerCube
Re: Opposite of tax-loss harvesting to improve tax efficiency of P2P?
« Reply #23 on: December 20, 2015, 02:41:22 PM »
The accounting gets a bit complicated (probably what LC doesn't want that treatment), but you treat capital gains and losses as ordinary income that can off-set the OID interest.

I can't imagine capital gains being treated as ordinary income considered a good thing as taxes on capital gains are lower.
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

bobeubanks

  • Sr. Member
  • ****
  • Posts: 273
    • View Profile
Re: Opposite of tax-loss harvesting to improve tax efficiency of P2P?
« Reply #24 on: December 20, 2015, 03:29:02 PM »
That IRS note is to rule out normal debt instruments which p2p notes are most certainly not.  LC explicitly links these notes to another instrument that we are not a party to, seem like the very definition of a CPDI.

Wishful thinking.

Pub 1212: "In general, a contingent payment debt instrument provides for one or more payments that are contingent as to timing
or amount."

Where does a LC note provide for one or more payments that are contingent as to timing or amount that is "not contingent merely because of the possibility of impairment by insolvency, default or similar circumstances"?

jpildis

  • Full Member
  • ***
  • Posts: 158
    • View Profile
    • Email
Re: Opposite of tax-loss harvesting to improve tax efficiency of P2P?
« Reply #25 on: December 21, 2015, 08:41:33 AM »
The accounting gets a bit complicated (probably what LC doesn't want that treatment), but you treat capital gains and losses as ordinary income that can off-set the OID interest.

I can't imagine capital gains being treated as ordinary income considered a good thing as taxes on capital gains are lower.

It's usually not but if you have LT losses it most certainly is.

jpildis

  • Full Member
  • ***
  • Posts: 158
    • View Profile
    • Email
Re: Opposite of tax-loss harvesting to improve tax efficiency of P2P?
« Reply #26 on: December 21, 2015, 08:51:55 AM »
That IRS note is to rule out normal debt instruments which p2p notes are most certainly not.  LC explicitly links these notes to another instrument that we are not a party to, seem like the very definition of a CPDI.

Wishful thinking.

Pub 1212: "In general, a contingent payment debt instrument provides for one or more payments that are contingent as to timing
or amount."

Where does a LC note provide for one or more payments that are contingent as to timing or amount that is "not contingent merely because of the possibility of impairment by insolvency, default or similar circumstances"?

Again, LC notes are not simple corporate bonds.  They are synthetic securities that are linked to the behavior of a consumer loan in which we are not party to.  Why do you think LC specifically discusses their CPDI in their prospectus if that designation isn't in play?

bobeubanks

  • Sr. Member
  • ****
  • Posts: 273
    • View Profile
Re: Opposite of tax-loss harvesting to improve tax efficiency of P2P?
« Reply #27 on: December 21, 2015, 12:27:36 PM »
Again, LC notes are not simple corporate bonds.  They are synthetic securities that are linked to the behavior of a consumer loan in which we are not party to.  Why do you think LC specifically discusses their CPDI in their prospectus if that designation isn't in play?

Again,  "not contingent merely because of the possibility of impairment by insolvency, default or similar circumstances"?

The LC prospectus goes into much discussion of the above and concludes that there are no payments which qualify as contingent.

I've read the prospectus and the only conclusion that can be reached is the LC does NOT think LC notes are CPDI. If they determine that a particular note for some reason has become a CPDI, they will notify the note holder on a note by note basis. Or, possibly the IRS will rule that they are CPDIs. But for now LC doesn't think a single note is a CPDI.

So LC is telling you these notes are NOT CPDI. The IRS has not ruled that they are CPDI. The thought that they are is wishful thinking. But feel free to ask the IRS for a ruling.

kblending

  • Newbie
  • *
  • Posts: 2
    • View Profile
    • Email
Re: Opposite of tax-loss harvesting to improve tax efficiency of P2P?
« Reply #28 on: February 24, 2016, 06:05:26 PM »
Did anyone try using either S corp or LLC for P2P investments?


Any news here regarding investing in prosper using an entity?  New to the site, but most of the taxation related posts I found regarding using an entity to expense a larger amount of losses seem to be from 2012-2013.  Any additional information would help, such as:

What would be the difference in using a corporation (maybe partnership/LLC for this) to filter the capital losses as expenses like a bank or other lender?  In the same regard, what vehicle do large P2P funds use to invest?

What are the main points of contention with the strategy (and which IRS sections they relate to)?

I am interested in the strategy and want to explore it further, a boost here would help.

Thanks