The §469 Grouping Election: A Planning Tool for Physicians Who Own Their Office Building

Many physicians eventually reach the point where they own both a medical practice and the real estate used by that practice. This is common for practice owners who operate from a dedicated office, clinic, or professional building. The structure often looks like this: the doctor owns the medical practice through an S corporation, partnership, or professional entity, and the building is owned separately, often through an LLC. The practice pays rent to the building entity, the building reports rental income and expenses, and everyone moves on.  It seems simple enough, but from a tax standpoint, this arrangement raises an important question: is the rental activity passive or non-passive?