How to track loan for our solar panel system ?

Dave1234

Quicken Classic Business & Personal, latest update. Been using Quicken for 25+ years.

Recently (a year+ ago), I purchased a solar system for my home. It's financed by a 25-year loan with a low interest rate.

For the past year, I've just been tracking my monthly payments on the loan as a "household" expense, but it occurs to me that I should track it better - as a loan, with principal and interest, with the principal going to some sort of asset account.

Creating the loan… this was an annoyance - Quicken wouldn't let me add a loan with a "next payment due" in the past (last year). To get around this, I changed my computer's date to last year, and Quicken then accepted it, so it looks good and the payments appear to be spot-on correct. I need to go through the last year of transactions and update them in my checking register - no biggie. But this brings up bigger questions..

1. Is this the BEST way to track this loan?
2. What "asset" should be tied to the loan? Should I tie it to the existing "Home" asset account, or should I create a new asset for it? What do others do? (Since it's attached to the home, I could see making it part of that asset, but it also depreciates, unlike the home, so maybe it should be separate)

And then a separate set of questions, because of course this needs to be more complicated.

After 18 months of payments (coming up soon), an additional balloon payment is due on the loan. This was extra deferred principal on the loan, with the expectation that it would be paid off by the 30% federal solar tax credit. I can either pay this lump sum of principal, or I can choose to NOT pay, and instead wrap in the additional principal, PLUS interest (a small amount), into the remaining loan payments. Essentially, the interest for the past 18 months for this extra payment becomes part of the new, larger principal. Which brings up another set of questions…

1. What's the best way to track this additional loan and interest today? Can I create a loan in Quicken that has no payments (i.e., just accrues interest monthly)?
2. What's the best way to wrap this second loan and interest into the first (larger) loan, so that Quicken can then track the new monthly payment appropriately (principal and interest?)

Tom Young

"As solar panels age, their output degrades. So that's why I was thinking of creating a separate asset in Quicken, and depreciating it over those
25 years."

You can say the same thing for the roof, the house's paint job, siding, any exposed wood, and so forth. A house with a 24 year old roof is less desirable that a house with that same roof that's only 2 years old, more likely to leak. It too, "depreciates." Depreciation - effectively writing down an asset and inuring yearly expense is, pretty much, a concept that goes with "business." I'd just try and come up with a reasonable value for "the whole house." But it's your house and your financial statements so you absolutely are free to take any approach you'd like here.

Without getting too complicated, the easiest way to do what you plan to do is:

1. When the time comes to get that loan increased, just before it happens you "Pay Off" the loan without affecting any other Account or Category in the file. That action is by making an entry in the loan register's "Decrease" column, zeroing out the loan, and with the offset to that entry being the SAME loan Account in which you're making the entry, with the name enclosed in square brackets: [Name of Loan Account].
2. Then create a new loan Account establishing the "new principal." The new principal would be the amount you "paid off" for the old loan, plus the balloon, plus the deferred interest, as that's the "Opening balance" of the new loan.

Since you established the original loan without including the balloon plus interest I'd guess that the asset - separate Account or part of the house Account - would have been likewise increase by the same amount of the loan? If that's the case then the asset should also be increased by the same amount as your loan liability increased. This too can be accomplished by using the "magic" of the self-referring entry technique outlined above.

There's other approaches to get to these results but this is by far the easiest.

Tom Young

You are right that transferring the balance in the old Account to the new Account is "better" in the sense that it can remind you down the road what actually occurred, i.e., you "borrowed more" on an existing loan vs. paying off the old loan and getting a new loan. The only problem with this, easily overcome, is that when you create the "new" loan with it's "new" terms Quicken will ask for the Opening Balance of the "new" loan and this balance should include the reverse balloon amount. So the resulting opening balance in the new Account will be the transferred amount plus the new amount that also includes the transfer. You should be able to get around this by deleting Quicken's entry for the Opening Balance and making your own "self-referential" entry using the same date as the Opening Balance's for the new additional amount.

Back up first, of course.

splasher

You should be able to get around the past date issue by changing the system clock of your computer to the required date in the past while setting up the loan.

Dave1234

https://community.quicken.com/discussion/comment/20421989#Comment_20421989

Thanks for the reply… but this is exactly what I wrote that I did to get around this annoyance.

Any assistance with my followup questions, which are more pertinent?

splasher

Sorry about that, I must have speed read past that sentence.

Tom Young

"Is this the BEST way to track this loan?"

If this is set up in a manual loan Account - not "downloading" - then I'd say "yes."

"What "asset" should be tied to the loan? Should I tie it to the existing "Home" asset account, or should I create a new asset for it? What do others do? (Since it's attached to the home, I could see making it part of that asset, but it also depreciates, unlike the home, so maybe it should be separate)"

I assume it's attached to the house, either on the roof or by cables running to the house, so it's clearly an addition to the "Home." I assume by "it depreciates" you're thinking that as it ages potential buyers will give it less and less "credit" as being an asset of the house but how you're going to figure that out is a mystery to me. The various sources of "current home worth" might give you credit eventually for the addition but even if they do they're going to simply provide you with their guesstimate of what the house (including solar) is worth.

As to your "loan" questions it would be helpful to know how you set it up in the first place. I assume you didn't schedule the balloon as coming into play after 18 months, that it would just "silently" go away? Do you intend to make the balloon payment (sounds like the answer might be "no") or is your intention not to pay it?

Dave1234

https://community.quicken.com/discussion/comment/20422078#Comment_20422078

Hey Tom, thanks for the reply.

The solar system, just like the new roof underneath, has a 25-year warranty, and realistically that's also its life expectancy. As solar panels age, their output degrades. So that's why I was thinking of creating a separate asset in Quicken, and depreciating it over those 25 years. Although it is an attached structure, it could be removed at some point down the road. If I sell the home before the 25-years is done, I do think it's an added value to the next homeowner, as it significantly offsets electricity usage.

How I set up the loan in Quicken - it's just a "loan", with a principal, interest rate, and monthly payments. I didn't set up anything for the additional payment due later this year - it's essentially another "loan" which I haven't set up yet. If I were to pay it off this year, I'd just pay the original principal. If I choose to not do so, the principal plus the accrued interest would roll into the original loan and become part of that loan's principal, which would increase the payments on that loan for its remaining term. The rate on the loan is only 0.99%, so I have no intention of paying anything off sooner than necessary. Does that make sense?

Tom Young

"As solar panels age, their output degrades. So that's why I was thinking of creating a separate asset in Quicken, and depreciating it over those
25 years."

You can say the same thing for the roof, the house's paint job, siding, any exposed wood, and so forth. A house with a 24 year old roof is less desirable that a house with that same roof that's only 2 years old, more likely to leak. It too, "depreciates." Depreciation - effectively writing down an asset and inuring yearly expense is, pretty much, a concept that goes with "business." I'd just try and come up with a reasonable value for "the whole house." But it's your house and your financial statements so you absolutely are free to take any approach you'd like here.

Without getting too complicated, the easiest way to do what you plan to do is:

1. When the time comes to get that loan increased, just before it happens you "Pay Off" the loan without affecting any other Account or Category in the file. That action is by making an entry in the loan register's "Decrease" column, zeroing out the loan, and with the offset to that entry being the SAME loan Account in which you're making the entry, with the name enclosed in square brackets: [Name of Loan Account].
2. Then create a new loan Account establishing the "new principal." The new principal would be the amount you "paid off" for the old loan, plus the balloon, plus the deferred interest, as that's the "Opening balance" of the new loan.

Since you established the original loan without including the balloon plus interest I'd guess that the asset - separate Account or part of the house Account - would have been likewise increase by the same amount of the loan? If that's the case then the asset should also be increased by the same amount as your loan liability increased. This too can be accomplished by using the "magic" of the self-referring entry technique outlined above.

There's other approaches to get to these results but this is by far the easiest.

Dave1234

Thanks again, @Tom Young for the detailed reply.

Agree that you're probably right about "whole house" vs "separate asset" - since the solar system IS a fixture, not unlike a washing machine.

When it comes time to switch to the "new" loan with updated principal, would it make more (or any?) sense to instead of the transfer-back-to-itself, to transfer the balance of the old loan to the new loan? I'm not sure if that'll actually provide any benefit, but it seems (feels?) like that's more "correct", if it's even something that Quicken won't balk at.

Tom Young

You are right that transferring the balance in the old Account to the new Account is "better" in the sense that it can remind you down the road what actually occurred, i.e., you "borrowed more" on an existing loan vs. paying off the old loan and getting a new loan. The only problem with this, easily overcome, is that when you create the "new" loan with it's "new" terms Quicken will ask for the Opening Balance of the "new" loan and this balance should include the reverse balloon amount. So the resulting opening balance in the new Account will be the transferred amount plus the new amount that also includes the transfer. You should be able to get around this by deleting Quicken's entry for the Opening Balance and making your own "self-referential" entry using the same date as the Opening Balance's for the new additional amount.

Back up first, of course.

Dave1234

@Tom Young thanks again!