Can you group several rental properties as one activity for the passive loss rules?

What grouping means

IRS Publication 925 says you can treat one or more trade or business activities, or rental activities, as a single activity if they make up an appropriate economic unit for measuring gain or loss under the passive activity rules. Without grouping, each rental is its own activity.

The publication gives the reason it matters. A grouped activity needs only one showing of material participation, while separate activities each need their own. Grouping also affects whether you meet the 10% ownership requirement for active participation in rental real estate.

The factors that decide an appropriate economic unit

Publication 925 lists the facts and circumstances with the greatest weight:

• the similarities and differences in the types of trades or businesses,
• the extent of common control,
• the extent of common ownership,
• the geographical location, and
• the interdependencies between or among the activities.

Three duplexes in the same town, owned by you, managed the same way, with one set of books and one handyman, look like one economic unit. A condo across the country that you own with a partner, with a different manager, looks like a separate one.

Limits to know before you group

• In general you cannot group a rental activity with a trade or business activity. Publication 925 allows it only in narrow cases, such as when one is insubstantial compared with the other.
• Once you group, you may not regroup in a later tax year, unless the original grouping was clearly inappropriate or the facts changed materially.
• You must meet the IRS disclosure requirements when you first group your activities. Your preparer files that statement with the return.

Because it is hard to reverse, a grouping is a decision to make with a preparer, using a full picture of your properties and your expected future purchases and sales.

A worked example of why it can matter

Example a made-up owner has two rentals. Rental A earns $9,000 net. Rental B has a $14,000 loss. If they are separate activities, each is tested on its own, and the loss on B is a passive loss. If they are properly grouped as one activity, the net result is a loss of $14,000 less $9,000, which is $5,000, tested as one activity. Check: $14,000 minus $9,000 is a $5,000 loss.

The netting in that example happens for passive losses either way, as shown in netting rental profits and losses. The larger benefit of grouping shows up in the participation tests and in what happens when you dispose of one property, which your preparer can explain for your facts.

Real estate professionals have a separate election

Owners who qualify as real estate professionals can elect to treat all their rental real estate interests as one activity. That election has its own rules and hours tests, covered in real estate professional status and the 750 hours. Most small landlords with a job elsewhere do not qualify.

Records to keep

1. A list of every property, its owner or owners, and its manager.
2. The purchase date of each, and the year it was grouped.
3. A copy of the disclosure statement filed with the return.
4. A short note of why the properties are an appropriate economic unit.

This post describes the IRS publication and does not give tax advice. Grouping is a choice with long-term effects, so ask your preparer first.

How DoorKeeping handles it

DoorKeeping keeps separate books for each property and shows the whole portfolio together, so the numbers for each rental and the combined result are both available. It does not make grouping elections. Ask Claude or ChatGPT for each property's net income for the year and give that to your preparer, who decides how the properties are grouped. DoorKeeping gives no tax advice.

Sources

1. IRS, Publication 925, Passive Activity and At-Risk Rules, read Oct 30, 2026

Questions

Can I treat all my rental properties as one activity?

If they form an appropriate economic unit, yes. Publication 925 lists the factors, including common control, common ownership, location and interdependence.

Can I change my grouping later?

Generally not. Publication 925 says you may not regroup in a later year unless the original grouping was clearly inappropriate or the facts changed materially.

Can I group a rental with my other business?

In general no. The publication allows it only in narrow cases, such as when the rental is insubstantial compared to the business.

Do I have to tell the IRS I grouped?

Yes. You must meet the IRS disclosure requirements when you first group your activities.