Your Kiva experiences

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jacob
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Your Kiva experiences

Post by jacob » Sat Jun 08, 2019 4:46 pm

I've googled around on the forum and noticed that several of you are using it, so I have some practical questions:
  1. What are the tax consequences/taxable events in the US?
  2. Does Kiva send you a 1099?
  3. How are losses dealt with? 1099? The "non-business bad debt" write off on schedule D similar to P2P loans?
  4. What about currency conversion losses? (What about gains?)
  5. I understand that the money is funded via paypal and that you can use paypal to pay with credit card AND that this might be a clever way to use a credit card with cashback! This would be a clever way to earn some interest. Does this work?
Right now I find very little worth investing in and since default rates seem to be very low for some of the partnered loans (practically BBB rated), it seems like a good/useful way to park excess cash (compared to so many others).

classical_Liberal
Posts: 804
Joined: Sun Mar 20, 2016 6:05 am

Re: Your Kiva experiences

Post by classical_Liberal » Sat Jun 08, 2019 9:47 pm

Kiva is set up as a charitable donation vs more traditional P2P lenders. Unless they have changed something and have multiple options for which I'm unaware. I used/use it specifically as charity vs a place to park capital. Kiva funds is operations mainly from two sources, direct operational donations and interest received on it's loans. If you choose to fund a loan they give each investor an option to also donate an amount (10%, I believe) to cover the operational expenses of that particular loan. However, that's not a requirement.

So to answer your questions. No 1099 because you do not receive interest payments, only repaid prinicple. The interest is used by Kiva for operational funding. Since principle is repaid, investment donations are not considered charitable donations, however any donation provided for operational expenses are, hence should be deductible. Although I'm not sure charitable donations work with post 2018 tax law as I did not itemize last year. Kiva track reconrd for repayment is impresive (97%ish?), as of yet I have not taken a "loss", so I'm not sure how that would be handled on taxes (is it a charitable donation then?). Also my total amounts are unimpressive, so likely not worth the bother if I end up losing 3% over time. I have never taken a withdrawal, but donations are accepted through paypal and I used a bonus CC for it both times I donated.

Again, I use this as charity. The money I put in a plan to leave forever and continue to reuse for further investments. I also pay the "operational" donation with each loan since this is charity for me. My hope this this is to estabish a sum while acumulating and then add maintainece amounts only during periods of reduced income. It works for what I want to do, but may not be the best option for what you are looking for.

Chris
Posts: 638
Joined: Thu Jul 22, 2010 2:44 pm

Re: Your Kiva experiences

Post by Chris » Sun Jun 09, 2019 7:50 am

jacob wrote:
Sat Jun 08, 2019 4:46 pm
How are losses dealt with? 1099? The "non-business bad debt" write off on schedule D similar to P2P loans?
Kiva also won't issue a 1099 for this. There's a chance you could deduct it, but I never have; my loss rate is 1.36% after making 1000+ loans.
jacob wrote:
Sat Jun 08, 2019 4:46 pm
What about currency conversion losses? (What about gains?)
Currency loss is treated the same as a default: you don't get your full $25 back. But you can also filter loans to exclude the possibility of currency loss, which will restrict the countries available to Ecuador and other places that use the USD or maintain a peg to it. But not all currency loss is borne by the lender; the loss only kicks in if the USD appreciates by more than 10% against the local currency. For my portfolio, I've lost 0.04% to currency.

Lenders don't receive any upside for gains (USD depreciation).
jacob wrote:
Sat Jun 08, 2019 4:46 pm
I understand that the money is funded via paypal and that you can use paypal to pay with credit card AND that this might be a clever way to use a credit card with cashback! This would be a clever way to earn some interest. Does this work?
Yes, this does work. Paypal processes both inbound and outbound for no fee. I do fund my account with a credit card. Withdrawals happen within 2 weeks when transferring your Kiva balance out to Paypal. But I try not to take advantage of Paypal's charitable relationship with Kiva too much.

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