What are the downsides of making a grouping election?

[Jason Powell]

I've read articles and tried to drum up info online about the pros and cons of making a grouping election for rental real estate activities, but it's not "clicking" with me for some reason. Hoping someone can share the pros, and mostly the downsides of doing this. I'll share a few details of my situation and why I'm considering this in the event it helps. Thansk!

2021 - Sold a personally held property at approximately a $250k long term cap gain, plus some depreciation recapture

2021 - Invested in many syndications as an LP, which in aggregate will generate pass-through losses of say $175k. I also have about $25k of suspended losses from future years.

I have been classified as a real estate professional, including 2021, but will no longer qualify for that classification moving forward for the foreseeable future. At this point, I'm more inclined to continue with syndications as my sole real estate allocation, but it's possible I eventually desire to be more active. I currently have no remaining personally held rentals.

My thoughts were that I could make a grouping election in order to wipe out a huge portion of my tax bill this year; is that correct? If yes, what are the downsides I should be aware of assuming I'm going to be investing as a passive LP in many more deals moving forward?

[Ashish Acharya]

If you do have not any other rentals, then just grouping your LP interest is not going to benefit you at all. Grouping them will have adverse tax consequences for you. Further analysis is required to conclude your situation.