Big Savings or Indifference on the §179D Tax Deduction?

Marky Moore, CEO and founder of Capital Review Group, shares insights about the expiring Energy Policy Act (EPACT) §179D tax deduction, as well as the potential effects such an expiration will have on the multifamily industry.

Phoenix—Marky Moore, CEO and founder of Capital Review Group, an energy incentives consulting firm, shares her insights on the expiring Energy Policy Act (EPACT) §179D tax deduction, as well as the potential impacts such an expiration will have on multifamily. Part of the Energy Policy Act of 2005, the deduction applies to commercial buildings—including multifamily—that employ energy-efficient practices, allowing for up to $1.80 per square foot of reduced tax liability. A sunset provision within the law means the policy is set to expire on December 31, 2013, assuming there are no attempts to renew it in the 113th Congress.

MHN: What was the full scope of this tax deduction?

Moore: It applies to retrofits, re-modeled tenant improvements and new construction. The applicability is across the board for any energy-efficiency measures, and it has to be tied into one of three sub-systems—lighting, HVAC and *envelope. Beyond that, unless the efficiency measure is part of one of those systems, it is not applicable.

MHN: Are there any plans to renew the EPACT §179D tax deduction?

Moore: Since 2005, there have been a multitude of proposals to amend, alter or change it. I would say that the tone of Washington, D.C. is [that] everyone seems to be talking efficiencies and energy. Whether or not that truly translates into the extension or modification of §179D remains to be seen. But there is discussion about energy and efficiency broadly, not specific and unique to §179D.

MHN: What do you think will be the ultimate impact on multifamily operators when this deduction expires?

Moore: Unfortunately, I’m not sure that it has impacted them significantly anyway. The issue of qualifying an existing commercial-residential is problematic. So the impact to them—I’m not sure it’s going to be noticed. I don’t know of many that have taken advantage because qualifying is not very easy. Other than the East Coast where there’s a central plant, [on the] West Coast there are lots of individual heat pumps for those units, and they’re typically not efficient. I don’t know a whole lot of commercial-residential that have taken advantage of it (§179D).

MHN: What other existing programs and incentives might neutralize the impact of this expiration?

Moore: Well, there’s no doubt in my mind that energy/power costs are going to go up; it’s not going to go down. So from the standpoint of anybody who has implemented energy-efficiency measures, hooray for them—they’re a little bit ahead of the game. I think that rebates are always discussed, but with a couple of thousand of utility jurisdictions in the country, they are also mercurial.  The best bet would be to have §179D extended and to have a little more education and information disseminated to commercial-residential [owners]. Because very often, who owns one property owns a variety of others.

MHN: Why do you think more multifamily properties have not adopted this?

Moore: They see it as advantageous when they understand it, but there have been a lot of myths, rumor, innuendo and confusion in achieving it. It has been difficult to get from A to Z, so there are really not a whole lot of providers to make this simple and easy for people. So what you have is a bill that was conceived by Congress, by a committee in Congress. Then standards applied by DOE and then the Treasury Department/IRS took that and created an opportunity. And so the notion of this being simple… it really takes a specialist in order to make sense to people and the application of it. There are a lot of people who have gone after the low-hanging fruit, which is lighting. But when you get into envelope, HVAC or whole building, that’s a different process and a different requirement, and a lot of vendors have not been able to make the leap into that or make it make sense.