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adjustment was made, other than Speed Line Investment,
respondent contends that "the provisions of �469(i)(5)(B)
do not allow petitioners to deduct any derivative losses
related to the above partnerships." As we understand the
argument, respondent contends that petitioners are not
entitled to deduct any of the losses from the subject
partnerships because they are not eligible for the $25,000
offset for rental real estate activities, prescribed by
section 469(i). Under that provision, the blanket
prohibition against deducting passive activity losses,
contained in section 469(a), is not applicable to the
portion of the passive activity loss, up to a maximum of
$25,000, which is attributable to rental real estate
activities in which the individual actively participates.
Sec. 469(i)(1). Respondent asserts that petitioners, who
filed separate returns but did not live apart during 1987
or 1988, are described in section 469(i)(5)(B) as taxpayers
to whom section 469(i) is not applicable. As a result of
being ineligible for the $25,000 offset for rental real
estate activities prescribed by section 469(i), respondent
argues that petitioners cannot deduct any passive activity
losses.
As to respondent's first reason, petitioners contend
that respondent's agent disallowed the partnership losses
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