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As to respondent's second reason for disallowing the
partnership losses; i.e., that petitioner is not eligible
for the $25,000 offset for rental real estate activities,
provided by section 469(i), petitioners make two points.
First, they assert that this "is a new theory not raised
in the Notice * * * is outside the scope of the pleadings
* * * [and] was not tried by express or implied consent."
Second, they note that on the Forms 8582, Passive Activity
Loss Limitations, filed with their 1987 and 1988 returns,
both claimed passive activity losses, but neither claimed
eligibility for the $25,000 offset for rental real estate
activities prescribed by section 469(i).
We do not agree with respondent's second reason for
disallowing the partnership losses. We agree with
respondent that a married individual who files a separate
return for any taxable year is not entitled to the $25,000
offset for rental real estate activities unless the
taxpayer lives apart from his or her spouse at all times
during the year. Sec. 469(i)(5)(B). However, even if the
taxpayer is ineligible for the $25,000 offset for rental
real estate activities provided by section 469(i), the
taxpayer may be entitled to deduct losses from certain
passive activities by reason of other provisions set forth
in section 469. For example, section 469(m) provides a
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