Hi JD,
If you are investing as an individual and not as a business, debt deals that default are the absolute worst from a tax standpoint. All the interest you've received is taxable as ordinary income in the year you receive it. If the debt defaults, it only becomes tax-deductible when the remaining balance becomes completely worthless, at which point it is a (long-term) capital loss that must be claimed in the tax year when the debt becomes worthless. Thus, the interest you make is taxed upfront at your highest (marginal) tax rate and the capital loss only reduces your income tax at the end of your investment, at the lower long-term capital gains rate (with minor exceptions not covered here), and to the extent you have capital gains to offset it. Uncle Sam takes the the difference.
This is why crowdfunding debt with high default rates is just a terrible deal, and why I don't do it anymore.
Your accountant can tell you more.
Good luck.