Ideas on how to handle repayment?

DannyB

I sold a car to a family member for $10,000. They will be making monthly payments to pay it off.

How would you set this up in QS? What are your ideas?

Coach Natalie

@DannyB, thanks for posting your inquiry to the Community!

I would personally set up an Income Category for the payments, and I would definitely count it as income toward my budget. I also sold a car to my sister-in-law a few years back, and it helped offset the cost of my new car. 😁

DryHeat

@DannyB

I would set up an asset account to represent the loan and book principle payments as transfers with that account.

If they are paying interest, then the deposit transaction for the payment would have to be split between a transfer with the asset account and an interest income category.

SRC54

I agree with Dryheat. This would only be income in the unheard of event that you sold the car for more than you paid for it. This might happen if you have a 1965 Mustang in pristine condition. 😋You probably aren't charging interest since it's a family member, but if so, that would be income. It will become an expense if you have to write off the loan and it becomes a present. LOL

You traded your car for an asset of $10K. As you receive monthly payments, your asset is slowly transferred to cash. Each monthly payment is a transfer from the asset account to your cash account (checking, savings, etc.).

If you already have an asset account for your car, you can just rename it. I know all of you in this thread know this, but just explaining it some for those new to accounting.

DannyB

Thanks for the input, all, ya'll. The only reason for tracking the payments is to have a way to keep track of where my family member is in the payoff process.

What I've decided to do is to set up an Income sub-category (Auto Payment or some such) and then set up a recurring income series for the monthly payment as per @Coach Natalie's suggestion.

My ultimate goal is to be able to keep track of how much has been paid over time with the least amount of bookkeeping. This should be easy enough to do with a report filtered for this one income cat.

EL1234

If you set up an asset account as explained above, then the account balance will always show the up-to-date amount that the borrower owes. It should be pretty straightforward, you just need to create the account and then categorize the payments (both your initial payment and then their payments to you) as a transfer to the account. You could also set up a recurring reminder for the transfer so your projected cash flow will take it into account.

Coach Natalie

I find the entire payments to be income. I already spent the money to purchase the vehicle, and it is now an asset that I own. If I sell that asset, the money is then a profit. If I tracked the vehicle as an asset account in Quicken Simplifi, I would likely close/zero it out since I no longer own the vehicle, and then let the money come back to me in payments. My net worth would even out in the end.

As for tracking the amount owed, I never did this in Quicken Simplifi. I didn't even think to set up an account to track the balance owed and the payments. That's a good idea! I used a handwritten notebook. Lol.

EL1234

I wouldn't consider the vehicle an asset, rather, the loan is an asset (hopefully!). I suppose you could consider the money spent as an expense and the repayments as income, but that can make the Spending Plan complicated when it's not all paid up in the month the loan was given. Categorizing it as a transfer to a custom account means it won't mess up the spending plan, and setting up a recurring bill means that your checking account will show the repayments in the cash flow.

The only downside I could see is that the repayments won't show up as available income for use in the spending plan, but the counter-argument would be that you shouldn't loan money that you need for your day-to-day (monthly) expenses - of course that could be a separate discussion that may be beyond the scope of this forum :).

EL1234

Okay, I just reread and I see that the money wasn't given as a loan, rather, the car was given and the money coming in is payment for it. I still think I'd use a custom account to track the money coming back.

DryHeat

It depends on how formal you want to be. If you were in business doing this, I would call the debt your family member owes you an asset. The car was an asset, and you traded it for another asset, the debt.

But you are not in the business, so if you want to keep it simple and call it income that will also work. You will just have to figure out if you want to include it in or exclude it from the Spending Plan.

SRC54

I would still make it a monthly transfer if you want to keep it simple because it is not taxable income nor is it income on which you have to pay a tithe to your church. I would just do a one-sided transfer that is automatically ignored in the Spending Plan.

If it were truly income, you would have to pay taxes on it but this would only be true again if you received more for it than you paid in which case it would be a capital gain.

It all depends on how simple you want to make it. But my question still is @DannyB, when you owned the car, did you have it as an asset in Simplifi so it counted in your net worth? Because it was an asset in your net worth, and when you traded it for a promise of $10K, that should be counted in your net worth as well.

DannyB

Again, thanks for all the feedback.

First, I track my net worth via the dashboard of my financial planner/advisor's website and as a result I don't track all my assets in QS. I use QS for planning and tracking my day-to-day money dance.

The auto was replaced and rather than trade it in, we "gifted" it to one of our kids who needed a second car. There is no formal loan, but a simple "gentlepersons' agreement."

I did consider setting up an asset account and creating a recurring income and transfer to the asset account. I didn't think about simply categorizing the transaction directly to that asset account which would make the process that much simpler. Still, I think I'll stick with an income category and leave it at that. The amount is not significant but will offset the payments on the new car a bit, as Coach Natalie mentioned,

As far as this payment being classified as "income" and the issues of taxability, etc, raised by Steve that's not an issue. No interest is being collected and there is no capital gain involved.