Does Partial Grouping Election Exist For Rental Real Estate?

Question

Hello BP community, I am an investor who owns 8 properties. Can I make a partial grouping election which includes only half of my portfolio? For instance, grouping only 4 of my rentals? thank you, Pier

Michael Plaks · Answer

You still did not answer my question about your objective, so I will have to guess. I assume that you want to aggregate your rentals in order to claim REPS and meet material participation. No problem.

You're then concerned that, once you do that and later sell one of the properties, you will not be able to unlock passive losses from the sold property due to aggregation.

If I guessed correctly, your concern is not a concern. You will be able to unlock passive losses from a sold property even if you made the aggregation election.

There is no need to create groups. Do the aggregation election.

Michael Plaks · Answer

@Pier Di Giorgio

There's more than one grouping election.

More importantly is - what are you trying to accomplish?

Pier Di Giorgio · Answer

That's correct. My concern is that when you do the grouping election, you cannot unlock the passive losses if I sell one unit because you need to sell the properties as whole. I guess my question is if I can create a groups of 4 if I file with an election in place.

John Malone · Answer

@Pier Di Giorgio property grouping is based on the factors above. You need to form economic units. Once you group, you generally cant ungroup easily

Pier Di Giorgio · Answer

Thank you Michael. Since I am selling 4  of my units within the next 2 years, my goal is to group only the properties that I will keep for long term. So I was wondering if I can group only 4 of the 8. This year I will apply for a REPs status and I will need to group some of my rentals in order to meet the minimum of 500 material participation hrs total.

John Malone · Answer

@Pier Di Giorgio the grouping rules are as follows. Your groups should be able to run through these rules below;

Similarities and differences in types of trades or businesses;

The extent of common control;

The extent of common ownership;

Geographical location; and

Interdependence among the activities.

Does Partial Grouping Election Exist For Rental Real Estate?

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