Grouping — Instruction 8582 — Instructions for Form

Generally, one or more trade or business activities or rental activities may be treated as a single activity if the activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules.

Whether activities make up an appropriate economic unit depends on all the relevant facts and circumstances.

Instructions for Form 8582 (2025) 5

The factors given the greatest weight in determining whether activities make up an appropriate economic unit are:

Similarities and differences in types of trades or businesses,
The extent of common control,
The extent of common ownership,
Geographical location, and
Interdependencies between or among the activities.

taxable years beginning on or after March 22, 2021. If you are a calendar year taxpayer, the new provisions first applied to you in calendar year 2022.

Activities conducted through partnerships, S corpo- rations, and C corporations subject to section 469. Once a partnership or corporation determines its activities under these rules, a partner or shareholder may use these rules to group those activities with:

Example. You have a significant ownership interest in a bakery and a movie theater in Baltimore and in a bakery and a movie theater in Philadelphia. Depending on all the relevant facts and circumstances, there may be more than one reasonable method for grouping your activities. For instance, the following groupings may or may not be permissible.

A single activity.
A movie theater activity and a bakery activity.
A Baltimore activity and a Philadelphia activity.
Four separate activities. Once you choose a grouping under these rules, you must continue using that grouping in later tax years unless it’s determined that the original grouping was clearly inappropriate or a material change in the facts and circumstances makes it clearly inappropriate.

The IRS may regroup your activities if your grouping fails to reflect one or more appropriate economic units and one of the primary purposes of your grouping is to avoid the passive activity limitations.

Each other,
Activities conducted directly by the partner or shareholder, or

Regrouping Due to NIIT You may be able to regroup your activities, as described below, if you’re subject to the NIIT for the first time. For detailed information, see Regulations section 1.469-11(b) (3)(iv).

Regrouping on an original return. Under the NIIT fresh start election, you may regroup for the first tax year you’re subject to the NIIT (without regard to the effect of regrouping). You may regroup only once under this election and that regrouping will apply to the tax year for which you regroup and all future tax years. You’re eligible to regroup if:

You weren’t previously subject to the NIIT;
The amount you would have entered on Form 8960, line 12, without the regrouping, would have been greater than zero; and
The amount you would have entered on Form 8960, line 13, without the regrouping, would have been greater than the amount you would have entered on Form 8960, line 14, without the regrouping.

Activities conducted through other partnerships and corporations.

A partner or shareholder may not treat as separate activities those activities grouped together by the partnership or corporation.

Limitation on grouping certain activities. The following activities may not be grouped together.

A rental activity with a trade or business activity unless the activities being grouped together make up an appropriate economic unit and:

a. The rental activity is insubstantial relative to the trade or business activity or vice versa, or

b. Each owner of the trade or business activity has the same proportionate ownership interest in the rental activity. If so, the portion of the rental activity involving the rental of property used in the trade or business activity may be grouped with the trade or business activity.

An activity involving the rental of real property with an activity involving the rental of personal property (except personal property provided in connection with the real property or vice versa).
Any activity with another activity in a different type of business and in which you hold an interest as a limited partner if that other activity engages in holding, producing, or distributing motion picture films or videotapes; farming; leasing section 1245 property; or exploring for or exploiting oil and gas resources or geothermal deposits.
Any trading activities in which you don't materially participate. A trading activity is an activity of trading in personal property. For this purpose, personal property is any personal property that is actively traded, for example, financial securities. A taxpayer who does not materially participate in a trading activity is prohibited from grouping the activity with any other activity, including any other trading activity. The prohibition on grouping is effective for

Regrouping on an amended return. You may regroup your activities on an amended tax return, but only if you weren’t subject to the NIIT on your original return (or previously amended return). You’re eligible if:

You weren’t previously subject to the NIIT for the tax year for which you’re filing an amended return or any prior tax year;
The changes on the amended return cause you to be subject to the NIIT for the first time beginning in the taxable year for which you’re amending the return;
The limitation period for assessments under section 6501 hasn’t ended;
The changes on your amended return cause the amount on Form 8960, line 12, of your amended return to be greater than zero; and
The changes on your amended return cause the amount on Form 8960, line 13, of your amended return to be greater than the amount entered on Form 8960, line 14.

6 Instructions for Form 8582 (2025)

This rule applies equally to changes to modified adjusted gross income or net investment income upon an IRS examination.

Manner of regrouping. If you regroup your activities under this rule, you must attach to your original or amended return, as applicable, a statement that satisfies the requirements described in Regrouping under Disclosure Requirement next.

Disclosure Requirement The following disclosure requirements for groupings apply. You’re required to report certain changes to your groupings that occur during the tax year to the IRS. If you fail to report these changes, each trade or business activity or rental activity will be treated as a separate activity. You’ll be considered to have made a timely disclosure if you filed all affected income tax returns consistent with the claimed grouping and make the required disclosure on the income tax return for the year in which you first discovered the failure to disclose. If the IRS discovered the failure to disclose, you must have reasonable cause for not making the required disclosure. For more information on disclosure requirements, see Revenue Procedure 2010-13, available at IRS.gov/irb/ 2010-04_IRB#RP-2010-13 .

New grouping. You must file a written statement with your original income tax return for the first tax year in which two or more activities are originally grouped into a single activity. The statement must provide the names, addresses, and employer identification numbers (EINs), if applicable, for the activities being grouped as a single activity. In addition, the statement must contain a declaration that the grouped activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules.

Addition to an existing grouping. You must file a written statement with your original income tax return for the tax year in which you add a new activity to an existing group. The statement must provide the name, address, and EIN, if applicable, for the activity that’s being added and for the activities in the existing group. In addition, the statement must contain a declaration that the activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules.

Regrouping. You must file a written statement with your original income tax return for the tax year in which you regroup the activities. The statement must provide the names, addresses, and EINs, if applicable, for the activities that are being regrouped. If two or more activities are being regrouped into a single activity, the statement must contain a declaration that the regrouped activities make up an appropriate economic unit for the measurement of gain or loss under the passive activity rules. In addition, the statement must contain an explanation of the material change in the facts and circumstances that made the original grouping clearly inappropriate.