The short answer
You can group a DST interest with your other rentals only if together they form an appropriate economic unit under Reg. section 1.469-4, and for most DST owners there is little reason to. Section 469 already nets losses and income across all passive activities each year, so grouping does not unlock any extra annual loss. What grouping changes is the disposition rule: section 469(g) frees suspended losses when you dispose of your entire interest in an activity in a fully taxable sale, so a DST kept as its own activity can release its losses when the trust sells and you take cash, while a DST grouped with other rentals generally cannot. If you make no grouping disclosure under Rev. Proc. 2010-13, each activity is treated as separate.
At a glance
| Grouping test | Activities may be one activity only if they form an appropriate economic unit, judged on facts and circumstances |
|---|---|
| Factors | Type of business, common control, common ownership, geography and interdependence |
| Annual netting | Passive losses and income are aggregated across all passive activities whether or not grouped |
| Loss release | Suspended losses are freed on a fully taxable disposition of your entire interest in an activity |
| Grouping cost | Selling a DST that is part of a larger group is a partial disposition and usually frees nothing |
| Default | Without a Rev. Proc. 2010-13 disclosure, each activity is treated as separate |
| Binding | Groupings cannot be changed later unless clearly inappropriate or facts materially change |
You make the grouping choice yourself, because a DST is not a section 469 entity
Reg. section 1.469-4 sets the rules for grouping trade or business activities and rental activities. Paragraph (d)(5) makes C corporations subject to section 469, S corporations and partnerships group their own activities first, and their owners cannot split those groups. A DST is none of those: it is a grantor trust, and under Rev. Rul. 2004-86 you are treated as owning your share of its property directly.
So the rental conducted through each DST is one of your own rental activities, and the grouping decision is yours. Rental activities are passive regardless of participation under section 469(c)(2), as explained at DST passive losses and sale, so the choice is about how losses are tracked and released, not whether they are passive.
The appropriate economic unit test is hard for a DST to meet with your own rentals
Under Reg. section 1.469-4(c), activities may be treated as a single activity if they constitute an appropriate economic unit, judged on all the facts and circumstances with the greatest weight on similarities and differences in the type of business, the extent of common control, the extent of common ownership, geographical location, and interdependencies such as shared customers, employees or books. Any reasonable method of applying the facts may be used.
A DST typically shares few of those features with a rental you own and run. The trustee and sponsor control it, many investors own it, it may be in another state, and its books are the trust's. Two DSTs from the same sponsor with similar properties make a closer case, but the sponsor's common control is not common control by you. Paragraph (d)(2) also bars grouping a real property rental with a personal property rental, and paragraph (f) lets the IRS regroup activities when a principal purpose is to circumvent section 469.
Grouping does not change the annual result, because passive losses already net across all activities
Section 469(d)(1) defines the passive activity loss as the excess of aggregate losses from all passive activities over aggregate income from all passive activities for the year. A DST's loss therefore offsets income from your other rentals in the same year whether or not you group them, and a DST's income absorbs losses from your other rentals the same way.
Grouping does matter for material participation in business activities, and for the real estate professional rules, which have their own election in Reg. section 1.469-9(g) to treat all interests in rental real estate as a single activity. That election, once made, binds for every later year in which the taxpayer qualifies and sweeps in DST interests along with other rental real estate. The status tests are at real estate professional status.
The disposition rule is where grouping hurts a DST owner
Section 469(g)(1)(A) treats losses from an activity as non-passive when you dispose of your entire interest in that activity and all realized gain or loss is recognized. A DST sale that you take in cash is that event for a DST that is its own activity: its suspended losses are released against any income. A sale you exchange through section 1031 is not fully taxable, so the losses stay suspended either way.
If the DST is grouped with your other rentals, its sale is a sale of part of a larger activity. Reg. section 1.469-4(g) lets you treat the part disposed of as a separate activity only in a year you dispose of substantially all of the activity, and only if you can establish the deductions, credits and income allocable to that part with reasonable certainty.
Hypothetical: a DST carries $40,000 of suspended losses and you also own two local rentals. Kept separate, a cash sale of the DST frees the $40,000. Grouped with the rentals, the same sale frees nothing until you dispose of substantially all of the grouped activity. Run your own numbers with your CPA.
Doing nothing keeps each DST separate; a grouping needs a disclosure and is hard to undo
Rev. Proc. 2010-13 requires a written statement with the original return for the first year activities are grouped, and another when a new activity is added to an existing group, naming the activities and declaring that they form an appropriate economic unit. If you fail to report a grouping, section 4.07 treats each activity as separate. For most DST owners that default is the right answer.
Once made, a grouping cannot be changed under Reg. section 1.469-4(e) unless it was clearly inappropriate or a material change in facts makes it so. Review any existing grouping before buying a DST, so the new interest is not added to a group by a statement you did not intend; the general rules are at the passive activity grouping election and passive activity loss rules for landlords.
Related questions
Can I group my DST with my own rental houses?
Only if together they form an appropriate economic unit under Reg. section 1.469-4(c). Differences in control, ownership, location and operations usually make that a weak position for a DST.
Does grouping let my DST losses offset more income?
No. Passive losses and income are aggregated across all passive activities each year regardless of grouping. Only non-passive income remains off limits.
What happens to suspended losses when my DST sells?
If the DST is its own activity and you take the proceeds in a fully taxable sale, they are released. If you exchange, or if the DST is grouped with other activities, they generally stay suspended.
Do I have to file anything to keep my DSTs separate?
No. Rev. Proc. 2010-13 requires a statement to group activities; without one, each activity is treated as separate.
Does the real estate professional election group my DSTs?
Yes. The election under Reg. section 1.469-9(g) treats all of a qualifying taxpayer's interests in rental real estate as one activity, and it binds for later years in which the taxpayer qualifies.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- Reg. section 1.469-4, definition of activity (grouping rules)
- 26 U.S. Code section 469, passive activity losses and credits limited
- Rev. Proc. 2010-13 (IRS), disclosure of activity groupings
- Reg. section 1.469-9, rules for certain rental real estate activities
- Rev. Rul. 2004-86 (IRS), DST as grantor trust