www.chornyak.com                                                                                 chornyak@chorrnyak.com                                                                                               
What's Happening Now
 
One of our clients, William Brown, has published a fascinating book on the Vietnam war: Our Vietnam Wars as Told by 100 Veterans Who Served, available from Amazon.  Read more about the writing of this book here .
 
 
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With approximately six million jobs available in the U.S. what is the biggest job search mistake people are making?
 
 

 
The flu epidemic may be easing. 
 
 
 
Never complain about local traffic congestion. Here are the cities where drivers waste the most time in traffic.

 

  
A new study has found that excessive alcohol use can increase risk of early onset dementia. 
 
 

How to discuss money during an interview
 
 

 
Why you shouldn't buy an expensive house
 
 

     
Here are ten surprising things that you probably didn't know are taxable.
 
 

     
Foods that dentists never eat (or drink) and you shouldn't either. 
 
 
 

Scientists are close to creating "sheeple." 

   
March 2018
  
 
The recently passed Tax Cuts and Jobs Act needs to be explained more clearly.  Our feature article this month from Commonwealth Financial Network does a good job of making the provisions of this act crystal clear.  Be sure you know what the IRS considers to be residential debt, what can be deducted, and where a home equity loan used for home improvement, line of credit, or refinanced mortgage fit into the picture.
 
The book Our Vietnam Wars, the work of one of our clients, uses a journalistic interviewing technique to provide a fascinating first-hand account of this painful conflict.  Please see the reference in the left-hand column.
 

If you've picked up some extra cash through luck, athletic skill, or other activities, there's a good chance you owe taxes on that money as well.  See the article on 10 things you may not know are taxable, in the left-hand column.
 
 
Thanks for being a friend and/or client.

Please feel free to contact us by phone at 614-888-2121, toll-free 877-389-2121 or e-mail chornyak@chornyak.com with any questions or comments.

Sincerely, 
 
Joe
Forbes Names Joe Chornyak, Sr. in Top 15 of Best-In-State Wealth Advisors 
 

Forbes Best-In-State Wealth Advisors list spotlights over 2,000 top-performing advisors across the country who were nominated by their firms-and then researched, interviewed and assigned a ranking within their respective states.

We are proud to announce that Joe Chornyak, Sr. has been named to this exclusive list.

Click here to see the methodology used to compile the registry.

The 2018 ranking of the Forbes' Best-in-State Wealth Advisors list was developed by SHOOK Research and is based on in-person and telephone due-diligence meetings to evaluate each advisor qualitatively and on a ranking algorithm that includes client retention, industry experience, review of compliance records, firm nominations, and quantitative criteria (including assets under management and revenue generated for their firms). Overall, 21,000 advisors were considered, and 2,213 (10.5 percent of candidates) were recognized. This recognition and the due-diligence process conducted are not indicative of the advisor's future performance. Your experience may vary. Winners are organized and ranked by state. Some states may have more advisors than others. You are encouraged to conduct your own research to determine if the advisor is right for you. Portfolio performance is not a criterion due to varying client objectives and lack of audited data. SHOOK does not receive a fee in exchange for rankings.


Mortgage and Home Equity Loan Interest Deductions under the Tax Cuts and Jobs Act
 
  
 
With its passage in December 2017, the Tax Cuts and Jobs Act (TCJA) changed the deductions for interest on mortgage and home equity loans. What is not clear, however, is how to apply those changes to residential debt.

The source of this ambiguity is twofold: (1) definitions from the 1986 "old" tax law and (2) the multiple ways to use home equity. The possible result? The interest on some refinanced mortgages and home equity loans and lines of credit may be deductible under the TCJA. Here, we'll provide some clarity on this issue, starting with a definition of residential debt.

How does the Internal Revenue Code define residential debt?

The mortgage interest deduction began under the Tax Reform Act of 1986 (a.k.a. the old tax law). This law allowed a deduction for qualified residence interest in two separate categories: acquisition indebtedness and home equity indebtedness. It defined "acquisition debt" as new or refinanced secured debt used to acquire, construct, or substantially improve a residence. It defined "home equity debt" as secured debt that could, but did not have to, be used to acquire, construct, or improve a house.

The TCJA did not change or modify either definition.

What interest can be deducted?

Prior to 2018, you could deduct interest on mortgage debt up to $1,000,000. The $1,000,000 could be either a single mortgage or a total combined mortgage debt on a primary residence and a vacation home.
You could also deduct up to $100,000 of the interest paid on home equity loans and lines of credit. This interest was deductible irrespective of how you used the loan proceeds. Debt consolidation? Deductible. College tuition? Deductible.

Under the TCJA, however, only acquisition debt qualifies for the interest deduction. Obviously, mortgages are loans for the acquisition or construction of a home. The TCJA caps the interest deduction for mortgages obtained after January 1, 2018, at $750,000. All mortgage debt secured before December 31, 2017, is grandfathered under the old rules. This means that the $1,000,000 limit still applies to mortgages that existed before the end of last year.

The TCJA also eliminates the interest deduction for home equity loans and lines of credit. Here, it contains no grandfather provisions. Even if a home equity loan or line of credit was taken before December 31, 2017, an interest deduction on its remaining balance may depend entirely on whether the debt is acquisition debt.

Will interest on a home equity loan or line of credit used for home improvement be deductible?

Maybe. This is one of the ambiguities that the Internal Revenue Service (IRS) must clarify. The TCJA kept the old tax law's definitions of acquisition debt and home equity debt; however, the TCJA looks only at the use of the debt. That is, interest is deductible if the loan is acquisition debt used to build, acquire, or improve a home. The fact that a primary residence secures a new home equity loan or line of credit is irrelevant.
Home equity loans and lines of credit are often, but not always, used to improve a residence. For example, a home equity loan used for debt consolidation or college tuition does not qualify as acquisition debt because it does not enhance the home's value. On the other hand, the same home equity loan used to build an addition that increases the home's cost basis and improves its market value appears to meet the definition of acquisition debt.

Will a refinanced mortgage qualify as acquisition debt?

Again, maybe. This is another aspect of the TCJA that lacks clarity. The original mortgage was acquisition debt. But what if part of the refinancing is used to pay off credit cards? The interest on that portion of the refinanced loan is not acquisition debt.

Is there general agreement that interest on a refinanced mortgage or home equity loan may be deducted if it meets the definition of acquisition debt?

No. Some tax preparers take a literal approach. They read the TCJA as barring a deduction for all home equity debt, irrespective of its use. Others take a more practical view. They interpret the TCJA in conjunction with the old tax law's definition of acquisition debt.
You can help prepare for this uncertainty by documenting and tracking the use of home equity debt.

Unknown territory

As you can see from this discussion, until the IRS provides guidance on the implementation of the TCJA, we are in unknown territory. Specifically, clarification is needed regarding what home equity and refinanced mortgage debt qualifies for an interest deduction. While we await further details, however, focus on what we do know and prepare for the potential possibilities.
 
 
Ten Smart Financial Steps that Lead to a Comfortable Retirement   
 
  
From The Street

With so many Americans lagging behind on retirement savings, it's high time workers had a blueprint for retirement that, if followed, will lead to a golden time in one's golden years. There's a good reason why. According to a recent study by the Employee Benefit Research Institute, only 18% of Americans are very confident they'll have the income needed for a comfortable retirement. Let's stop that negative sentiment with this blueprint, including ten specific financial steps to take to guarantee a great retirement - as long as you stick to the plan.
 
Worried about how to pay for your golden years?
 
For starters, having a financial goal in mind is a great place for retirement savers to start. While every saver's situation is unique, A 2014 study by the Bureau of Labor Statistics found a household aged 64 to 74 will need an approximate average of $44,680 to live annually. "The rule of thumb can be based on requiring 80% to 100% of the final working year's salary," says Barbara Delaney, founder of StoneStreet Advisor Group. "Social Security may only cover 20%-to-30% of retirement funding, so the shortfall will need to be made up with other funding such as 401(k)s & Roth IRAs."
 
As Significant Assets Are Needed To Retire, Start Saving Early 
 
The earlier you start, the more time your money has to grow. Yet, according to a survey by American Funds, nearly two-thirds of Gen X-ers are kept up at night thinking about financing their retirement, when the answer is right in front of them. "The best way to avoid the fear of retirement is to plan ahead and start saving early," says Todd Erkis, a professor of finance and risk management at Saint Joseph's University in Philadelphia. "Deposit as much as is allowed into tax-advantaged retirement accounts, like 401(k)s, before considering any other retirement savings products, like an annuity."
 
Maxi Plan Contributions
 
Byna Elliott, senior vice president at Fifth Third Bank advises taking full advantage of company-sponsored 401(k) plans and/or other retirement vehicles, "at least up to any company match." Schedule a meeting with your financial advisor, banker or retirement vehicle representative to discuss your plan contributions. "Talk to them about what you need to save to get the most of your retirement," Elliot says.
 
Rebalance Annually 
 
It's important to rebalance your retirement portfolio (especially as you near retirement), so that your portfolio doesn't stray too far from its target, says Paul Jacobs, chief investment officer at Palisades Hudson Financial Group, in Atlanta. "Portfolios don't need to be frequently traded, but you should be rebalancing your portfolio at least once a year," Jacobs explains. "If stocks go up or down significantly during the year, this can create additional opportunities to rebalance. By buying when stocks drop, and selling when they appreciate, you'll be continually buying low and selling high, which should be the goal of any long-term investor."
 
Have Your Own Cash Ready
 
With marriages and businesses often taking unexpected turns, be sure to have a portion of your assets or savings separated for a rainy day or unexpected event, notes Lacey Manning, a retirement specialist at LTG Financial in Ocala, Fla. "Many individuals fall victim to these unforeseen events, but it's always nice to have financial security when you need it most," Manning says.
 
Start planning for early retirement, even if you don't wind up leaving the workforce early, says Sarah M. Place, CEO of Place Trade Financial, in Raleigh-Durham, N.C. "Cut ten years off of your anticipated retirement date and save as much as possible towards that goal," Place states. "The idea is this - instead of thinking that you have 20-plus years to save, starting saving as if you had only ten years, and watch the money add up." Whether you choose to retire early or plan to work forever, having the option available is priceless, Place notes. "That's especially so in the event that you are forced to due to unforeseen circumstances such as health related issues, economic downturns, or company downsizing," she says.
 
Balance Your True Investment Risk Tolerance 
 
Place says that, whether you are a smart Millennial who is getting a jump-start on retirement, a retiree seeking to offset inflation or somewhere in between, it's always important to consider your own true personal risk tolerance and circumstances. "That includes how much risk you can afford to take both financially and emotionally prior to making investment decisions," she explains. "There is a fine line between taking on too much and too little risk with retirement assets." Investors who are trying to make up for lost time often lose money by taking on too much risk, buying high and selling low, counting on past performance to offer future results and choosing inappropriate investments, Place notes. "On the other hand, investors who are too conservative with their money may not only find themselves without having enough to retire but they may also find that, due to the negative impact of inflation, they are losing money -- buying power -- very safely," she says.

To continue reading, click here .

 
Market Update
A bumpy ride for the markets

February was a rocky month for the stock market. A mid-month plunge of roughly 10 percent left the three major U.S. indices down at the end of the month, though they were able to make up some of the loss. The Nasdaq Composite lost 1.74 percent for the period. The Dow Jones Industrial Average and S&P 500 Index fared worse, losing 3.96 percent and 3.69 percent, respectively.

This was the first substantial market decline we've experienced in some time-since October 2016 for the S&P 500, in fact-so it was disconcerting. Much of the volatility appeared to come from concerns over interest rates. Fears about rising inflation and the potential actions of the new chair of the Federal Reserve (Fed) pushed rates higher during the month. Although worrying, this level of volatility is normal by historical standards. In addition, the partial recovery, combined with strong fundamentals, suggests that this rough patch may be more of a pause rather than a reversal of the ongoing growth trend we've seen.

Faster earnings growth continued to support the markets in February. In fact, fourth-quarter 2017 earnings came in well above expectations. According to FactSet, as of February 23, the estimated earnings growth rate for the S&P 500 was 14.8 percent. If this rate holds, it would represent the highest quarterly earnings growth since the third quarter of 2011. Positive sales surprises, at 78 percent, were also higher than expected. If this continues, this would be the best result since FactSet began collecting sales data in 2008.

Technical factors were also supportive of equity markets. All three U.S. indices were above their respective 200-day moving averages at month-end, despite the sharp drop early in the month.

International equities also had a rough February, with both developed and emerging markets underperforming U.S. markets. The MSCI EAFE Index of developed markets declined by 4.51 percent, while the MSCI Emerging Markets Index was down 4.60 percent. As was the case in the U.S., rising global interest rates fueled much of the volatility, even as economic fundamentals remained supportive. Technicals also were supportive for international markets. Both indices ended the month above their respective trend lines.

To make it three for three, fixed income suffered in February, as rising interest rates dragged down bond prices. The 10-year U.S. Treasury began the month with a yield of 2.72 percent and ended at 2.87 percent. This increase caused the Bloomberg Barclays U.S. Aggregate Bond Index to decline by 0.95 percent. High-yield bonds, which are typically less affected by interest rate changes, had a slightly better month, losing just 0.85 percent. Spreads for high-yield continued to remain tight, diminishing the prospects for further price appreciation in the asset class.

Economic growth continues, but at a slower pace

February's data showed that the U.S. economy continued to grow, albeit at a slower pace. Gross domestic product (GDP) growth for the fourth quarter of 2017 was revised down to 2.5 percent, primarily due to a larger-than-expected increase in imports. Although lower than the 3.2-percent GDP growth we saw in the third quarter, this remains a healthy level.

Despite the slowdown, there were plenty of bright spots in the data. The January employment report, for example, showed that 200,000 new jobs were added during the month, a very strong result. And the good news extended past the headline. December's new job figures were revised up by 16,000, and average hourly wage growth hit the highest level since 2009. Unemployment remained unchanged at 4.1 percent-well below the Fed's 4.6-percent target. With the strong increase in jobs and faster wage growth, more money for American workers is likely to spur further spending and growth.

Along with the ability to spend, the willingness to spend remained strong. Both major surveys of consumer sentiment increased by more than expected in January, despite rising gas prices and stock market turbulence.

Like consumers, businesses were confident, with surveys stable at very high levels. Both of the Institute for Supply Management surveys, for manufacturing and nonmanufacturing businesses, moved to 13-year highs in February, indicating continued business investment and expansion. Although business confidence remains strong, the hard data came in somewhat weaker than expected. The core durable goods orders figure, which excludes volatile aircraft purchases, disappointed. It fell 0.3 percent against expectations for a modest gain of 0.4 percent-the first decline in this measure since November 2017. This follows a period of strong growth, however, so it is likely a pause rather than a trend change for business investment.

With growth continuing, markets currently expect the Fed to hike interest rates by 25 basis points at the March meeting. In addition, another two to three more hikes are expected in 2018 after that. New Fed Chair Jerome Powell increased expectations for further rate hikes during his first testimony to Congress in February by giving a positive outlook for the economy.

Housing a drag

Despite improvements in other areas of the economy, housing growth continued to slow. Homebuilder confidence remained near multiyear highs, but all categories of home sales fell during January-the second month in a row-against expected increases. The declines appear to be due to a combination of rising mortgage rates and low supply levels. Buyers simply are not able to find-and increasingly less able to afford-a new home. On the supply side, however, conditions are improving. Housing starts and permits increased by 9.7 percent and 7.4 percent, respectively, in January. Faster supply growth should help the housing market going forward.

Political risks recede-for the moment

The major source of risk for markets has continued to come from the political world-although those risks now appear to be receding. Following the brief government shutdown on February 8, both Democrats and Republicans cut a deal both to lift the debt ceiling until September 2019 and to increase spending. This removes the shutdown risk until then while providing additional fiscal stimulus to the economy.

In Asia, it also appears as if risks have diminished following the successful completion of the Winter Olympics in South Korea. All eyes were on the U.S. and North Korean delegations at the games, and a willingness from North Korean leaders to meet with the U.S. for diplomatic talks was a de-escalation of the previous fiery rhetoric between the two countries.

Finally, in Europe, Angela Merkel's attempts to form a coalition government and end a political state of limbo were finally successful after months of negotiations. As the German chancellor has been one of the most stable leaders in Europe over the past decade, this is good news for international markets.

Despite the good news, politics have the potential to be a real source of risk at any time. Notably, on March 1, an announcement of planned U.S. tariffs on steel and aluminum sparked worries about a trade war and sent markets into decline, just as they were recovering from the February downturn.

Real slowdown or blip?

With volatile markets and some weakening in the economic data, February was a more difficult month than we have seen in some time. That said, growth remains in healthy territory, and the weak data may well prove to be transitory. Further, strong corporate sales and profits should continue to support the financial markets. What this month's volatility gave us was a wake-up call, reminding investors that markets can go down as well as up.
This is nothing new, of course, just a return to normal-which is a good thing. As the economy has recovered, and as interest rates continue to normalize, we can expect more volatility. But that doesn't necessarily mean we need to worry. The U.S. economy and financial markets are the largest and most stable in the world and are well positioned for long-term growth. A well-diversified portfolio designed around your financial objectives and time horizon remains the best way to pursue your goals.
 
 
Co-authored by Brad McMillan, senior vice president, chief investment officer, and Sam Millette, investment research associate, at Commonwealth Financial Network®.

All information according to Bloomberg, unless stated otherwise.