You will generally use Schedule E of form 1040 to report your rental income and expenses. You can, but it's not a good idea.Most leases prohibit subletting, or only allow it with permission. A sublet, or sublease agreement, adds someone new to an existing lease. Usually the new person (subletter) replaces someone who is moving out. Earnest money deposit 3. Subleasing is when your existing tenant enters into a contract with a third party to occupy all or a portion of their rental space.