The problem it solves
To deduct rental losses as non-passive, a real estate professional must materially participate in each rental. With several properties, meeting the hours test on each one separately is hard. The grouping election under the regulations lets you treat all rental real estate as one activity, so your combined hours count together.
How to make it
You make the election by attaching a written statement to your return declaring that you are a qualifying real estate professional and are electing to treat all interests in rental real estate as a single activity. Once made, it is binding for future years and can only be revoked in limited circumstances.
Why it matters at sale
Grouping helps you clear material participation while you hold, but it interacts with passive loss rules when you dispose of a property. Because the election is binding and affects how suspended losses are freed at sale, it is worth planning with a professional before you file it.
Frequently asked questions
Who can make the grouping election?
A taxpayer who first qualifies as a real estate professional under the hours tests, then elects to aggregate rentals for material participation.
Is it permanent?
Effectively yes. The election is binding for future years and revocable only in limited situations.
Why bother grouping?
Without it you must materially participate in each property separately, which is difficult once you own several rentals.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.