Category: blog

I’m Selling My Home. Will I Pay Taxes on the Gain?

Note: This article was published on January 11th, 2021 and based on tax law at the time. Tax laws are subject to change.

As financial planners, we often have clients wanting to sell their home. They may be doing it to purchase a larger home for their family, downsizing their home in retirement, or simply deciding to move to another area. At the time of this writing, some housing markets are very hot, and homes are being bought and sold at a rapid rate. In saying this, we often have clients asking about the tax consequence of selling their home.

Your home is considered a capital asset. It is important to understand how capital assets are taxed when they are sold. When capital assets are sold, they may receive different tax treatment than ordinary income (e.g. wages). When an asset with an appreciated price is sold, the gains on the sale (sale price minus cost basis) are treated as either short-term capital gains or long-term capital gains in the year the asset is sold. This is reported on Schedule D of the tax return. A short-term gain is when the asset was held for one year or less. These are taxed at your ordinary income tax rate, which depends on your Adjusted Gross Income (AGI). A long-term gain is when the asset was held for more than one year. Long-term capital gains receive preferential tax treatment and are taxed at either 0, 15%, or 20%, again depending on your AGI.

There is good news. The IRS tax code will allow the capital gains on the sale of your home to be excluded from taxation (not counted in your AGI) under specific limits, if certain requirements are met. This rule is found under “Section 121” of the tax code. If you file “Single” on your tax return, you may exclude up to $250k worth of capital gains from the sale of your home. Likewise, if you file “Married Filing Jointly”, up to $500k of capital gains from the sale of your home may be excluded. The transaction is not reported on Schedule D of the tax return and does not require any additional tax forms.

As previously mentioned, there are certain requirements that must be met to qualify for the Sec. 121 exclusion. One rule is that the home must be considered your principal residence. The taxpayer must have lived in the residence for two years within the five-year period preceding the sale of the home. These two years do not have to be consecutive. Either 24 full months or 730 days will satisfy the two-year ownership and use requirements. A prorated exclusion is available if the two-year requirement is not fully met. It’s also important to note that there are certain exemptions that exist if the two-year requirement is not met.

See below for some common situations regarding Sec. 121 of the tax code:

Example 1

Jeff is single and bought his home in 2012. The purchase price then was $100k. He has not made any additional improvements to the home. He sells his home for $200k in 2021. This home has been his principal residence every year for the last 9 years. Jeff meets the requirements under Sec. 121 of the tax code, meaning he can exclude up to $250k in capital gains from this transaction. The $100k in gains that resulted from the sale of his home are excluded from taxation. He will not have to report this on his Schedule D or add $100k to his AGI on his tax return. 

Example 2

John and his wife, Linda, bought a home for $600k on July 30, 2020. The homes in this market are rapidly appreciating due to companies opening in the city that offer high-paying jobs. John and Linda find a different home across town that they just cannot resist. They decide to sell their current home for $800k on January 30, 2021, 6 months after originally purchasing the home. They have not fully met the two-year requirement, which would have allowed them to exclude up to $500k in capital gains (married filing jointly). The prorated calculation is as follows: (months lived in home ÷ 24-month requirement) × full exclusion amount. Of the $200k in capital gains from the sale of their home, only $125k can be excluded [(6 ÷ 24) × 500k]. The remaining $75k (short-term capital gain) will be reported on their tax return and be taxed at their ordinary income tax rate.

Example 3

Jason’s grandmother passes away. She leaves her home to Jason in her will. She bought the home 40 years ago for $50k. The home was valued at $100k on the date of her death. Jason  inherits the home via the probate process. Because of this, Sec. 121 of the tax code doesn’t come into play. Under current tax laws, he receives the home with a “stepped-up basis” according to the value of the property at her death, which was $100k. If he sells the home immediately for $100k, he pays no capital gains tax. If he were to sell it in a few months later for $110k, he would be responsible for paying short-term capital gains tax on the $10k of gains.

I hope you found this information informative. Please click here for more information on this topic directly from the IRS website.

Happy New Year! A Look Back at 2020.

Our January letter to clients is always a look back at the previous year. We share the many fantastic things that our team and our clients have done. We take time to celebrate the wins of the previous twelve months and use it as momentum toward the next twelve. We cannot think of another year in the history of our firm where this process has been any more important. 2020 was trying. It challenged us all as individuals, families, employers, and employees in ways we could not have expected. It tested our perseverance and our resolve. But, it also highlighted our ability to adapt and be flexible in a situation outside of our control. It delivered important lessons. We became more grateful, more compassionate, and more family-oriented. We cooked at home more, supported local businesses, and enjoyed the great outdoors. We realized that despite what is going on around us, we will make the best of the situation. So, in keeping with that thought, here’s that annual list of celebrations and “making the best of the situation”.

In January, Jeff transitioned the president’s role to Jessica. Jeff and Jessica had been working on this transition for several years. Jeff remains as the Chief Investment Officer.

In March, Longview supported Toasting with Tallulah, an event that raises funds for the Women’s Philanthropy Society. The society is a group of women who are focused on making a difference, with a concentration on women and children. Each year, they give a $50K grant for a project that will create systemic change in the Greater Huntsville area. March was also the month that we were forced to close our offices due to COVID-19. However, we celebrate that we were able to transition into working from home fairly easily.

Chad Odell and his wife, Tyla, welcomed a beautiful and healthy baby girl, Sophia Grace, in April. Also in April, we participated in the HudsonAlpha Alumni meeting. Longview partners with HudsonAlpha to sponsor these events every year. We also took time to celebrate our office manager, Debbie, for Administrative Assistant Day. She is certainly the glue that holds us together! She has done a terrific job of managing the day-to-day as we have transitioned to working from home.

When not working with clients, we spent May and June working toward identifying better tools to communicate and share with clients. You can see this through the increase in communications through social media and our newsletter. We’ve also added videos to our website and are continuing to build out other processes and implement technology that our clients may find valuable.

In July, Andrew Gipner and his wife, Kristin, welcomed sweet baby #2, Liam Shea Gipner. Andrew was also named as a board member on the Leadership Greater Huntsville Board. He has volunteered with the organization for several years now, most recently serving as the Program Chair for the Connect 22 class.

In September, Jeff Jones was named as the National Association of Personal Financial Advisors (NAPFA) Treasurer. Jeff was named to the National Board in 2019.  Also, in September, Longview supported the Community Foundation’s Summit On Philanthropy. We have been long time partners of the Community Foundation and are so proud to be able to continue to support this organization.

In October, we supported the HudsonAlpha Tie The Ribbons event. This is an annual event that supports vital breast cancer research.

Once again, we supported the HudsonAlpha Alumni event in November.

In December, Chad Odell not only earned his CIMA® designation, but also passed his Series 65 exam, which allows him to become a Registered Investment Advisor. We finished off the year with a virtual holiday party and fun games. The Gipners are indeed the reigning champions!

We celebrate that even during difficult times, we have had the opportunity to continue to support our communities through our time, efforts and assets.

As we embark into 2021, we want to thank you. Thank you for your continued trust and support. Thank you for adapting with us to new technology and new ways of meeting and communicating. We learned a great deal over the last year. But, the most important lesson we learned is that we are all in this together. So, thank you for your support of not only our firm, but the other families and businesses in our communities.  May 2021 bring even more to celebrate!

4th Quarter 2020 Market Commentary

Note: This market review was published on December 28, 2020 and may not be reflective of current market or investing issues.

As 2020 comes to a close, it is a good time to reflect on how markets have performed throughout the year.  There has been a multitude of external factors that have had an impact on markets this year that include, Brexit, COVID-19, U.S. Elections, and a trade war.  With all of these in mind it is hard to imagine that here in December we would be at or near all-time highs in U.S. equity markets. With that said, investors have had record amounts of support both from monetary and fiscal authorities around the world.

With all of the negative effects that COVID-19 has had on the global economy, as of December 15th, the S&P 500 is up more than 13%1, the NASDAQ is up 39%2, and the Dow Jones Industrial Average is up 5%3 from the beginning of the year. Other asset classes have also done well this year; gold is up 19%4 for the year while silver is up 34%5.  However, not all assets have had a great year, the U.S. Dollar has fallen a little over 6%6, and WTI Crude Oil is down over 15%7 after being priced negatively in April.

Central banks around the world have provided unprecedented support to markets this year.  The Federal Reserve Bank has gone beyond just the purchasing of U.S. Treasury assets, and has purchased both mortgage-backed securities and corporate debt.  This amount of support was needed to provide liquidity in a time when companies were unable to get the funding that they needed in order to continue to operate.  The Fed also lowered their overnight lending rate to 0% and has expressed their intent to keep the rate at or near 0% for an extended period of time. 

What is really different about the response this time, as opposed to the Great Financial Crisis, is that federal governments around the world have taken a much more aggressive fiscal stance in response to the shutdowns.  In the United States, our Congress passed the CARES Act in March that allocated $2 trillion to different programs to support the economy.  Some of those programs included direct payments to certain individuals and families based on prior income, loans to businesses to support payroll, and funds to industries that were severely affected by the virus (i.e. airlines). In addition, Congress has also passed additional funding of $908 billion to further support the economy.

While these programs are indeed needed after the economy was all but closed entirely for months, it is not yet known what type of long-term effects they will have on our economy and markets.  With the amount of money being printed and spent by the federal government, we expect that inflation will increase, leading to higher commodity prices. Returns for broadly diversified portfolios will vary from year to year but are likely to be depressed over the next decade as we have essentially borrowed against our future returns to fuel this year’s dramatic rally. Fixed income will be one of the most difficult places to allocate funds as rates around the world are near or below 0%, although interest rates are poised to head higher if inflation does start to increase over the next few years.

Sincerely,

Longview Financial Advisors, Inc.

1https://www.cnbc.com/quotes/?symbol=.SPX

2https://www.cnbc.com/quotes/?symbol=.IXIC

3https://www.cnbc.com/quotes/?symbol=.DJI

4https://www.cnbc.com/quotes/?symbol=@GC.1

5https://www.cnbc.com/quotes/?symbol=@SI.1

6https://www.cnbc.com/quotes/?symbol=.DXY

7https://www.cnbc.com/quotes/?symbol=@CL.1

Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by  Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.

Home Moving Checklist

So much can go into a home move, and often times, some things can easily be overlooked. While not an exhaustive list of everything that comes up while relocating your home, below is a list of tasks that you should consider both prior to and after your move. For a downloadable PDF click here.

Before Move

  • Work with your financial planner to determine what issues you should consider when buying a new home.
    • Mortgage-related issues
    • Down-payment & closing 
    • Updated cash flow and budget
    • Tax planning
    • Estate planning 
  • Prior to making an offer, go to your new home at different times of the day to get an idea of what to expect.  
  • Purge house for any thing you do not want or no longer use.
    • If you don’t plan on keeping it in your new house, go ahead and get rid of it!
      • For anything you donate, create a list for the purposes of possible deductions when you file your taxes.
      • Many organizations will come to your house to pick up donated items. You may want to consider this – especially for larger items or if you intend on donating enough that will involve multiple trips to the drop-off location(s).
    • Any items that can be sold, consider a pre-move garage sale, or sell items platforms such as Craigslist or Facebook Marketplace.
    • For item that cannot thrown away (i.e., old paint, flammable liquids), drop off at your local household hazardous waste facility.
    • Any food that is not expired in pantry, consider giving to local food bank.
  • If large purchases are going to be made (e.g. furniture) choose a delivery time that coordinates for a day after your moving day.
  • Create a game plan for moving day
    • Begin to stock up on moving supplies.
      • Whether you purchase boxes, moving paper, tape or plan on using whatever you can (Amazon boxes, boxes from friends and family, etc.), once you know you are going to move, it is never too early to start stocking-up!
      • While it is a cost, consider purchasing boxes that are all the same size which will make the packing of a moving truck much easier and efficient. U-Haul, Home Depot, and Lowes are sell moving boxes at a fair price.
    • If you have pets, determine how you will move them.
      • Consider boarding or having someone not assisting with the move watch them. If moving to another city, consider moving pets a couple days before and boarding until you are fully moved in to your new home.
    • Determine what will be moved in moving truck and what will be transported via your own vehicle.
    • Create a floorplan for the move and designate each room and number; pack each box by the room and label each room by a corresponding number (or a system that creates ease and efficiency for moving)
      • For example, your Living Room may be Room 1. The box should only include items designated for as well as have “1” or “Room 1” written on it.
      • For items that cannot be packed in a box (e.g., sofa, bedframe, etc.) tape a piece of paper onto the item with the room number to maintain an efficient move.
      • Whether your hire movers or have family and friends help you move, notify individuals of your system prior to packing up moving truck at old home and before unloading at the new home.
    • Decide if you are going to use movers or Do-It-Yourself (DIY).
      • If you intend on using movers:  
        • Obtain quotes from at least three (3) companies in order to receive a competitive quote.
        • In addition to their price, inquire on other important factors such as numbers of moves, estimated time to move, and whether or not they provide services such as packing boxes.
        • Once moved, check for any potential damages and notify the moving company as soon as possible.
      • If you intend to DIY:
        • Obtain quotes from different rental companies to determine the rental cost and price per mile.
        • Verify with your auto insurance company on coverage extending to rental trucks and trailers. Many times, coverage is not extended, therefore, it will make sense to purchase the additional insurance coverage on the rental.
        • Don’t want a moving company handling your fine china? Consider hiring them for a limited engagement to move large, bulky, and heavy items. You’re back with thank you later. Companies like U-Haul have a list of individuals who will take care of something like this for you.
  • Schedule to disconnect, cancel, or transfer of service for the following prior to closing on old home:
    • Internet
    • Cable
    • Utilities (Water, Power, Gas, Garbage)
    • Home security system
    • Gym
    • __________________
    • __________________
    • __________________
  • Begin the process of transfer of records for the following:
    • Medical, Dental, Vision (if moving location where you will need a new doctor)
    • School
    • Subscription services (Amazon, etc.)
    • __________________
    • __________________
    • __________________
    • __________________
  • Complete a change of address form at your local USPS or online.
    • Once notification of forwarding period is received, make note on your calendar of the last day mail will be forwarded to your new address.

After move

  • Update Driver’s License.
  • Once Driver’s License is updated and copy of deed is received, apply for homestead exemption.
  • Change padlocks on doors; have at least two keys per lock.
  • Change any other locks outside door (e.g. lock on fence, mailbox, etc.).
  • Purchase new garage door openers and reset settings on garage door.
  • Update addresses for the following:
    • Banks
    • Credit Cards
    • Retirement & investment accounts
    • Social Security/Medicare
    • Insurance
      • Home, auto, personal property, life, disability, long-term care, and health
    • Subscription services
    • Cell phone
    • Organizations (especially those that require notification in a certain period of time!)
    • Current and/or former employer
    • __________________
    • __________________
    • __________________
    • __________________
  • Update your voter registration.
  • Confirm that all mail is being forwarded to address; use as opportunity to change address for anything you may have forgotten. 
  • Complete or update home inventory.
  • Create a “We Moved” postcard and send via mail or email to your family, friends, and any other important contacts.
  • Enjoy your new home!

3rd Quarter 2020 Market Commentary

Note: This market review was published on July 15th, 2020 and may not be reflective of current market or investing issues.

The first half of 2020 brought volatility back to the markets that has not been seen in a decade.  Not only did we see the fastest 30% decline in the history of the U.S. equity markets, but in the second quarter, markets staged a nearly equal rally.  As of the end of the second quarter the NASDAQ had reached an all-time high, the S&P 500 came within less than 5%1 of reaching its all time high, and the Dow Jones Industrial Average came within 8% of its all-time high2.  This rally was led by technology stocks and those that facilitate the movement toward a work from home culture in the United States.

The equity market rally in the United States has been faster and stronger than seen in other markets around the world, and has also happened while the economy has suffered some of the worst performance in decades.  Unemployment skyrocketed from less than 5% to more than 14%3, the Gross Domestic Product (GDP) of the United States is expected to decrease by more than 35% in the second quarter4, more than 8.5% of homeowners are currently not making their mortgage payments5.  The U.S. stock market seems to be almost completely disconnected from the real economy.

If the stock market really is so disconnected from the real economy, then what is fueling the markets strength? There are a few things that are going on that are supporting markets. First, is the amount of stimulus being provided by the Federal Reserve Bank (the Fed) and the Federal Government.  Second, the amount of COVID-19 cases may be rising, but the death rate in the U.S. has continued to fall.  Finally, there have been many announcements by pharmaceutical companies like Moderna, Novavax, and Pfizer around treatments and/or vaccines for the Coronavirus.

The stimulus from the Fed and from the Federal Government is already at levels that we have never seen before.  They have taken their overnight lending rate to 0%, as they did during the Great Financial Crisis in 2008, but they have also increased their Quantitative Easing program to include both investment grade and non-investment grade corporate debt.  They have bought billions of dollars of U.S. Treasuries, mortgage-backed securities, and corporate bonds in only a few months’ time.

As states began to reopen from their lockdowns throughout the second quarter of the year, we have started to see a dramatic rise in new cases of COVID-19.  While this is a concerning statistic, there is a silver lining that has helped the sentiment in the stock market, and that is that the fatality rate has continued to decline.  The first few weeks of July will be critical for this, as the number of deaths do tend to lag the number of cases.  If we do not begin to see an increase in the fatality rate, we can expect the trend to continue.

The news that has continued to have the largest effect on the U.S. market is optimism around a vaccine or treatment that is effective against COVID-19.  There are currently multiple companies that are researching a vaccine, and research has shown that Remdesivir (a drug made by Gilead) decreases the severity of the disease and the length of a patient’s hospital stay.  This is important as one of the biggest concerns about this pandemic was that hospital systems may be over-run.  The faster that patients can recover and be released from the hospital, the faster a bed and supplies can be open for another that needs them.

While there has been a lot of good news lately, it is important to remember that there is a lot that we still do not know about this virus and that we will likely not know for months to come.  The fatality rate has come down, viable treatments have been found to decrease the length and effects of the disease, and the economy is beginning to re-open and show signs of life.  We have a long way to go, but for now it looks like the worst may be behind us.

Sincerely,

Longview Financial Advisors, Inc.

1: https://www.cnbc.com/quotes/?symbol=.SPX

2: https://www.cnbc.com/quotes/?symbol=.DJI

3: “Civilian Unemployment Rate,” U.S. Bureau of Labor Statistics, June 2020, accessed July 02, 2020, https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.html

4: “GDPNow,” Federal Reserve Bank of Atlanta, July 02, 2020, accessed July 02, 2020, https://www.frbatlanta.org/cqer/research/gdpnow

5: Adam DeSanctis, “Share of Mortgage Loans in Forbearance Increases to 8.55%: Mortgage Bankers Association,” MBA, June 16, 2020, accessed July 02, 2020, https://www.mba.org/2020-press-releases/june/share-of-mortgage-loans-in-forbearance-increases-to-855

Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by  Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.

Coronavirus (COVID-19) & Market Volatility Update – At War (April 9th, 2020)

Note: This market review was published on April 9th, 2020 and may not be reflective of current market or investing issues.

Wars can be very inconvenient and last a long time.  Around our office, we feel we are fighting wars on two fronts; one a health care war and the other, an economic war.

Health Care War – Obviously, this is not our area of expertise, so when life is threatened, one should at least find an expert.  Dr. Scott Gottlieb is one and in his recent editorial in the Wall Street Journal this past Monday, he lays out the two ways drugs are being developed in the near term: antivirals and antibody therapies.  Both of these approaches could be ready before a vaccine, which is probably still a year away.  These two drug approaches would help to blunt the ferociousness of Covid-19, while the hope is that a vaccine would prevent the illness altogether.  And while we are hopeful for any help, Dr. Gottlieb extends our return to normalcy much farther than our politicians, at least until year end.

Economic War – At least we have a little better understanding of the recession we have entered, and the bear market that started last month.  This bear market is very purposeful and self-inflicted; the slowing down, and in some cases, stopping economic activity to slow and hopefully, stop the spread of the virus.  The health care fallout created by the virus is staggering and dire; the economic cure will be just as dire. As we watch the normal monthly and quarterly statistics, so far, the real numbers (unemployment) and the estimates (GDP) are off the charts to the down side.  A bear market usually follows three stages: 1) a down-side drop (or in this case, a crash), 2) an equity rally off the first low set (sometimes retracing ½ of the initial drop) and finally 3) a consolidation phase that takes the market down at least to retest the initial low, and in some cases takes the market well below the original low point.  Some bear markets are relatively short (nine months) and some may last over three years, like the tech bubble from 2000 to 2003.  The 2008 crisis lasted 18 months, from October 2007 to March 2009.  Longview’s primary thesis is that we are currently in the upside bounce phase, which is being materially supported by Congress and our Federal Reserve Bank.  While the news of Covid-19 should get slowly better over the next six to eight weeks, the economic news may get significantly worse, bad enough to constitute the third stage, a new testing of the bottom.  Early on, many economists have theorized that the economy may start growing again in the late third quarter, possibly September or October of this year.  Our feeling now is that it may take much longer.  Richard Bernstein, in a recent Barron’s article wrote: “At bottoms, people just assume that horrific performance is going on forever and nobody wants to invest.”  The same feeling many of you felt in early March 2009! Protecting your capital is our primary responsibility, and while we don’t know for sure where the market is going day to day, history is an excellent guide.

Many thanks for your continued confidence in Longview.

Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by  Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.

2nd Quarter 2020 Market Commentary

Note: This market review was published on April 8th, 2020 and may not be reflective of current market or investing issues.

2020 started off with a continuation of the longest bull market in history, but it didn’t last long into the new year.  The major U.S. Indices hit their final high of the bull market on February 18th, 2020, and it was quickly downhill from there.  It took slightly more than a month for the S&P 500 to reach its recent low of 2,191.86, a decline of more than 35%.1  This included the fastest 20% decline in its history, multiple days of futures trading being stopped at their maximum loss and gain, multiple tests of the market “circuit breakers” that pause trading for 15 minutes when the index falls by 7%, and some of the best and worst single days in the history of the market.  The first quarter of 2020 was truly one for the history books.

We are living through a time that will be talked about for generations.  We are in a health crisis the likes of which have not been seen for more than 100 years, and it is having drastic effects on the economy.  A new virus that currently has no cure, no vaccine to prevent, and no heard immunity; it is truly a perfect storm.  This virus has lead governments across the globe to take measures that only months ago we would have likely considered unthinkable.  Global supply chains have been shut down, countries have banned travel, thousands of businesses in the United States have been forced to close, and millions of Americans have already lost their jobs.  Unfortunately, this is only the beginning, and it is likely to get worse before it gets better.

The Federal Reserve has thrown everything it has at the markets in order to try and dampen the long-term effects of this crisis.  They cut rates by 1.50%, all the way to 0%, and all of the cuts were made during emergency meetings.  In addition to rate cuts they also announced multiple assets purchase programs which include buying treasury bonds, mortgage backed securities, municipal bonds, and for the first time in history, investment grade corporate bonds.  The Fed is not alone.  The federal government has also passed a massive stimulus bill of more than $2 trillion, which includes direct payments to American tax payers.

To add to the uncertainty, there was also stress on the global energy markets.  At their latest meeting, the Organization of the Petroleum Exporting Countries failed to come to an agreement with Russia on production cuts.  This led to an oil price war, with Saudi Arabia increasing production to their maximum capacity and dropping prices.  The price of oil has seen a dramatic drop since that meeting falling to a low of below $20.  This has put significant stress on U.S. energy companies which require a price much higher in order to produce a profit on their oil drilling operations. 

With all of the uncertainty surrounding the COVID-19 outbreak and the oil price war it is difficult to understand the effects that will be seen in the economy and the financial markets, both short and long term.  With that said, volatility is likely to remain high over the coming months while investors digest economic data, company earnings, and continued economic shutdowns.  It is also probable that some small businesses that have been forced to close will not be able to reopen and some of those that have lost their jobs will not see those jobs return.  The one thing that is certain is that this crisis is going to have real and lasting effects on our economy and on our population. 

We wish all of our clients, friends, and family health and safety during these uncertain times.

Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by  Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.

CARES Act – What May Affect You

The COVID-19 (COVID-19) pandemic has left its mark on global and domestic markets. Government guidelines to practice “social distancing” has significantly impacted commerce as consumers are staying at home. The U.S. stock market ended its historical bull run of eleven years in mid-March. Many businesses have suffered in this time, unfortunately resulting in many employees being laid off.

The United States Congress scrambled to create a stimulus relief bill to help aide the economy and the American people. The Senate passed the COVID-19 Aid, Relief, and Economic Security (CARES) Act on March 25, 2020. On March 27, 2020, the House of Representatives passed the bill, and it was signed into law by President Trump just hours later.

This bill is an estimated $2 trillion emergency fiscal package, marking the largest stimulus bill ever passed. The bill is quite expansive, totaling 335 pages in length. It covers quite a few areas including aide to state and local governments, aide to specific business industries, tax credits to businesses, and support to states for paying unemployment benefits. For the purposes of this article, the topics discussed will primarily focus on a few areas deemed applicable to a large portion of Americans.

Tax Updates & Changes

Prior to the CARES Act, Steven Mnuchin, Secretary of the U.S. Treasury, announced that the tax filing and payment deadline for 2019 would be moved to July 15, 2020. This also results in estimated tax payments for 1st quarter 2020, which are also normally due on April 15th, being delayed until July 15th. Estimated tax payment due dates for the remaining quarters of 2020 remain unchanged for now.

One change the CARES Act has implemented is a brand new income adjustment (above the line deduction) called a Qualified Charitable Contribution. This deduction can be claimed for up to $300 in charitable donations to qualifying charitable entities. To be eligible for the deduction, the donation must have been in cash only (appreciated-asset donations do not qualify). Cash used to fund a Donor Advised Fund is not eligible either. To claim the deduction, the taxpayer must not itemize deductions, meaning they take the standard deduction.

If you have questions about anything tax related a result of the bill, we recommend you speak with your Financial Planner or CPA.

Rebate Checks

One area of the bill that many Americans will benefit from is the “Recovery Rebate”. These rebate checks are being issued in the form of a refundable credit against 2020 income. The goal for these checks is twofold: Put money in the hands of Americans who have lost some of their income, but also help stimulate the economy with consumers spending more money. Each individual taxpayer may receive up to $1,200 (Married couples filing jointly eligible for $2,400) based on income levels from their 2018 or 2019 tax return; whichever is last on file. Each dependent child that is 16 and under also qualifies the taxpayer for an additional $500 credit. These checks will be issued in the coming weeks, while those who have a bank account on file from a tax refund are expected to receive their Recovery Rebate via direct deposit.

Although the credit is pegged against 2020 income, income levels from your most recent tax return on file (2018 or 2019) are used for eligibility. To be eligible for the full rebate check, a married couple filing jointly must have adjusted gross income (AGI) under $150,000. For those filing head of household, AGI must be under $112,500. A single taxpayer’s AGI must be under $75,000 to be eligible for the full amount. For every $100 of income over the AGI threshold, the rebate check will be decreased by $5.

Example: Charlie and his spouse Karen last filed their taxes in 2018. They have 2 children, ages 14 and 19. Charlie and Karen file their taxes as married, filing jointly. They are eligible for a maximum rebate check of $2,900 (2,400 + 500). Their AGI on their 2018 tax return was $178,000. This means their rebate will be reduced due to being over the income threshold. Their rebate check would be reduced by $1,400 (178,000 – 150,000 = 28,000; 28,000/100 = 280; 280 * 5 = 1400). The rebate check received will be $1,500.

As mentioned earlier, the rebate check is in the form of a refundable credit against 2020 income. There is good news for those that made too much money in 2018 or 2019 and are not considered eligible for the rebate check. If they face hard times in 2020 with a large reduction in income, they may become eligible for the credit once they file their 2020 taxes in early 2021. Also, for those whose income increases in 2020 and may no longer qualify, they will not have to repay the amount they received in 2019. Please note that the Recovery Rebate is considered a tax credit; therefore, it is not taxable income.

Required Minimum Distributions (RMDs)

The CARES Act has suspended RMDs from applicable retirement accounts for 2020. Even better news is that individuals who turned 70.5 years old in the second half of 2019, and chose to delay their 2019 RMD until 2020 (under old RMD rules prior to the SECURE Act), can also suspend taking RMDs until 2021 as well. For those that have already taken their 2020 RMD, but would like to undo it, there may be an option. This option would be in the form of a “rollover”. Rollovers that are not performed trustee-to-trustee can be completed as long as the individual moves assets from one account to the other within a 60-day period.  Since it is now early April, an individual who took their RMD in early February or after may be eligible for this option. They would just need to simply make a contribution back into the account for the same amount as the RMD previously taken within 60 days of the distribution.

This suspension of RMDs also applies to beneficiaries who now own an Inherited IRA. Owners of an Inherited IRAs (who took ownership of the account prior to 2020) can stretch distributions from the account over the course of their lifetime. The account owner of an Inherited IRA must take an RMD each year following the year they acquire the account. Unfortunately, there is no way to undo the distribution and place the assets back into the account.

COVID-19 Distributions

The bill also introduced a distribution that can be taken in 2020 from an IRA or employer-sponsored retirement plan in wake of the COVID-19 outbreak. This distribution can be taken for an amount up to $100,000 for individuals that have been affected or impacted in some way financially by the COVID-19 pandemic. Those that are considered impacted by the COVID-19 outbreak must be diagnosed with COVID-19, had a spouse or dependent diagnosed with COVID-19, laid off from work, owned a business that closed or reduced hours during the pandemic, or meet other criteria deemed appropriate by the IRS. A perk to the distribution is that it can be “paid back” over the next three years starting from the date the distribution is taken. This means those that had to take a COVID-19 Distribution will indeed be able to make contributions to that account in excess of normal maximum contribution levels for a three-year period. 

This COVID-19 Distribution will avoid a 10% early withdrawal penalty for those that take the distribution under age 59.5. Another perk to this distribution is that the income can either be reported all in 2020, or spread evenly over three years (2020, 2021, 2022). From a financial planning perspective, spreading the distribution income over three years may be more appropriate for some individuals, as this might keep them in a lower tax bracket and be more efficient in terms of tax savings. For those on Medicare that choose to take the COVID-19 Distribution in 2020, and report all the income in the same year, it may cause their Medicare premiums to increase in 2022 due to a two-year look back period for IRMMA.

Federal Student Loan Payments

Another major change brought forth by the CARES Act is the suspension of Federal student loan payments through September 30, 2020. During this time, interest will not accrue on these loans. Be sure to contact your custodian to ensure automatic payments are suspended. Payments are optional during this time. The great news about this suspension of payments is that borrowers who are in route for student loan forgiveness can still count the suspension period as months of payments towards their forgiveness payment plan.

For a complete look at the bill in its entirety, please visit the following link: https://www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf

Coronavirus (COVID-19) & Market Volatility Update (March 25, 2020)

Note: This market review was published on March 25th, 2020 and may not be reflective of current market or investing issues.

I hope this finds you well.  Jon Meacham, today on a news show, was referring back to the phrase in the Declaration of Independence: life, liberty and the pursuit of happiness.  Certainly it is no coincidence that Thomas Jefferson put the word life first.  As Americans, we find ourselves fighting two wars at the same time in our own backyards.  If history is any guide, without prioritizing one over the other, we might very well lose both.

Obviously, the first war is the one against the Covid-19 virus, the one threatening our lives.  When I wrote to you just two weeks ago, this virus was just getting started in the U.S.  Now, while China and South Korea seem to have greatly contained the virus, the United States seems to be the new epicenter and on a trajectory steeper than that of Italy.  This is as serious as it gets.  We all have a collective responsibility to follow the guidelines set out by healthcare professionals, those doctors and scientists who have the training and understanding to see us through this.  This may take three or four weeks longer and be much more inconvenient, but the lives of our families is certainly worth the price.

The irony here is that if we are following doctors’ orders, we make the other war, the economic crisis worse in the short term.  Our government, as I write this, and most other developed governments are throwing everything they have in the way of stimulus at this problem, with little or no regard for sequencing or the longer term consequences.  And while their efforts may not stave off a recession, their collective work should shorten a downturn and blunt its negative effects.  To a large degree, that is what we have done with your portfolios: by creating a cash buffer, we have slowed the downside dramatically.  That said, your March statement will still look pretty ugly!

Now the question is how do we get back into the market safely.  This is a true, ferocious bear market, with huge swings both downward and upward.  I wish I could say we think this is over. We don’t think it is, but we do think we are closer to the bottom than the top.  In late March 2009, Jeremy Grantham of GMO fame put out a letter entitled “Reinvesting When Terrified”, and while we are certainly not terrified, putting money (risk) to work in uncertain markets goes against human nature.  So be it; you will find us putting cash back to work strategically over the next several weeks and months, primarily using a dollar cost averaging rather than a lump sum strategy.

Again, as we navigate the pitfalls of the global markets over the coming months, should you have any questions about either our investing process, our thoughts on the economy or your own financial planning, please don’t hesitate to contact your advisor.  If we all do our part, we will eventually get through this crisis.  Many thanks for your continued confidence in Longview.

Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by  Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.

Coronavirus (COVID-19) & Market Volatility Update (March 9, 2020)

Note: This market review was published on March 9th, 2020 and may not be reflective of current market or investing issues.

Erik Larson has just released a new biography of Winston Churchill entitled The Splendid and the Vile.  It documents the one year from May 10, 1940 to May 10, 1941, the period in which Nazi Germany overran France and began the bombing of London.  During this perilous time “Churchill’s great trick was his ability to deliver dire news and yet leave his audience feeling encouraged and uplifted”.

There is an investing concept we first heard during the 4th quarter of 2008: “the permanent impairment of capital”. During that recession, where the S&P 500 fell 50% over 18 months, this concept was loosely defined as losing no more than 20%.  We feel it is imperative to protect capital when it is called for and especially not to injure financial plans so much that they may never recover.  While the S&P 500 recovered in four to five years, it did so from a base of inexpensive equities and much government stimulus.  This time around equities are expensive, bonds even more so and global central banks have spent most of their stimulus.  We have been de-risking all of our managed portfolios since late January, from only 7% for aggressive accounts to 39% for moderate accounts.  So going into this Coronavirus crisis, we felt we were reasonably prepared, but its effect on the U.S. economy may be deeper than we thought.  That said, the Covid-19 crisis may dissipate quickly over the next three to four months if China and South Korea are any indication.  But it also may leave our economy, along with other global economies, in a much weaker state, much more so than even at the turn of this year.

As we navigate tough markets over the next several months, should you have any questions about either our investing thesis, the economy in general or your own financial planning, please don’t hesitate to contact your Longview advisor.  We try to build resiliency into our portfolios and planning for times like these, and while we might not have Churchill’s knack for encouragement, this crisis will also eventually pass us by.  Many thanks for your continued confidence in Longview

Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by  Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.

Disclaimer

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.


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