Your subleasing income is reportable income and can be offset by the related expenses you incur. Note however that capital improvements must be capitalized and depreciated. You should speak with a tax attorney or a good tax accountant BEFORE you do anything.
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I would agree that you should get professional assistance. You will need to pay federal and state income taxes on your income after deducting expenses from the rental property. It sounds as if determining your income will be relatively easy, but remember that refundable deposits are not income, but advance rent is includible in the year received.
The rent that you pay should be a currenlty deductible expense. There are also many other deductible expenses, including transportation costs, utlities, repairs, etc. However, any capital leasehold improvements that you make would be capitalized and deducted over the term of the lease. Not all costs must be capitalized and deducted over the lease term, many can be expensed currently. For example, if you paid an architect and paid a contractor to make structural improvements, such as moving or erecting walls, you would capitalize the architect's fees and the contractor's costs and deduct them ratably over the lease term. However, you should be able to deduct currently the cost of cleaning and painting a room. An experienced tax practitioner should be able to guide you through these decisions.