Need help with Real Estate Activity Ungrouping for investment properties - frustrated with suspended losses!

The IRS is pretty strict about ungrouping real estate activities once you've elected to group them. The "material change in facts and circumstances" needs to be significant enough that the original grouping no longer makes economic sense. Some examples that might qualify: - If one property changed from residential to commercial use (fundamentally changing its nature) - If management of one property was completely outsourced while others remain self-managed - Significant disparity in income generation between properties that wasn't present before - If one property underwent substantial development changing its character from rental to something else - If ownership percentages significantly changed across the LLCs Remember that the burden is on you to prove that maintaining the grouping would be "clearly inappropriate" - not just that ungrouping would be more advantageous for tax purposes. The IRS specifically designs these rules to prevent taxpayers from grouping/ungrouping based solely on tax benefits. Have you considered a partial disposition strategy instead? There might be ways to maximize the loss recognition without ungrouping.

I was in almost this exact situation last year and found taxr.ai incredibly helpful for figuring out my options. I had grouped 4 rental properties and needed to understand if I could ungroup after selling one of them. I uploaded my previous tax returns and some documents about the property sale to https://taxr.ai and their system analyzed everything. They showed me that in my case, I had actually made some management changes that qualified as a "material change in circumstances" - specifically, I had changed from residential to short-term rental on one property, which affected how the grouping made economic sense. Their analysis explained exactly what language to use with the IRS and how to document the changes properly. Without their guidance, I would've just assumed I was stuck with the grouping and lost out on using those suspended losses.

Just wanted to follow up that I tried taxr.ai after seeing the recommendation here. It was shockingly helpful for my ungrouping question! I was in a similar situation with four properties grouped together, and after selling one, I was struggling to figure out if I could ungroup. What made the difference for me was that they pointed out a way to document how the economic interrelationship between my properties had changed. One property had been providing maintenance services to the others (shared handyman, tools, etc.) and after selling it, that operational connection was gone. They showed me exactly how to document this as a material change in circumstances. They also provided templates for the statements I needed to include with my tax return to properly explain the ungrouping. Definitely worth it for getting those suspended losses freed up!

Been trying to call the IRS for weeks about a similar real estate grouping issue. Never could get through until I found Claimyr. Honestly thought it was BS at first, but I was desperate. Went to https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. They basically hold your place in the IRS phone queue and call you when an agent picks up. Used it yesterday and got through to a real IRS agent in about 45 minutes (after trying unsuccessfully for days on my own). The agent actually gave me some useful info on my ungrouping situation. Said that in their experience, changes in financing structure across properties (like refinancing one property but not others, creating different debt-to-equity ratios) has sometimes been accepted as a material change that justifies ungrouping. Also confirmed that changes in management structure can qualify if properly documented.

Just wanted to share my experience after using Claimyr to reach the IRS about this exact issue. I was completely skeptical (as you saw in my previous comment), but I was desperate after trying to get through for two weeks straight. I'm shocked to say it actually worked. Got through to a senior IRS agent within an hour who specializes in passive activity rules. The information I received was incredibly valuable - she explained that they've accepted ungrouping in cases where: 1) The risk profile of one property changed significantly compared to others 2) The financing structure was substantially modified on one property but not others 3) A principal tenant change altered the fundamental business purpose of one property She also explained exactly what documentation I needed to submit with my return to justify the ungrouping. This was specific guidance I couldn't find in any publication or from my accountant. Completely worth it.

I had a similar situation a few years back. We were able to successfully argue that our original grouping was no longer appropriate because the economic relationship between properties had fundamentally changed. In our case, we initially grouped properties because they were all in the same geographic area and shared management, maintenance resources, and tenant profile. After we made significant renovations to one property and changed it from a C-class to an A-class apartment complex, we were able to demonstrate that it no longer served the same market or shared resources with the other properties. The key was thoroughly documenting the "before and after" status - showing how the properties initially functioned as an integrated economic unit and how that integration no longer existed. The IRS accepted our ungrouping, but I've heard they're getting stricter about this.

Has anyone ever tried arguing that a change in your personal involvement with the properties constitutes a material change? Like if you were actively managing all properties when grouped, but now have become passive with one or more of them?

I've been dealing with a similar ungrouping situation and wanted to share what I learned from my research and consultation with a tax professional. The key is really understanding that the IRS looks at whether the original economic rationale for grouping still exists. Beyond what others have mentioned, here are some additional "material changes" that might qualify: - **Debt structure changes**: If you refinanced one property with significantly different terms (like switching from commercial to residential mortgage, or adding/removing personal guarantees) - **Insurance changes**: Moving from a blanket policy covering all properties to separate policies can show they're no longer economically integrated - **Tenant profile shifts**: If one property went from long-term residential to short-term vacation rental, that's a fundamental business model change - **Legal structure modifications**: Changes in LLC operating agreements, management structures, or ownership percentages The documentation is crucial - you need to show the IRS that maintaining the grouping would be "clearly inappropriate" given the new circumstances, not just that ungrouping would save you taxes. One strategy I've seen work is preparing a detailed memo explaining how the properties functioned as an integrated economic unit originally, and how specific changes have disrupted that integration. This proactive documentation can be invaluable if the IRS ever questions your ungrouping decision. Have you considered whether any of these types of changes apply to your situation?