Can I use short term rental income losses to offset my W2 tax liability if I'm subleasing?

This is a good tax question about short term rental income. The strategy you're thinking about has some limitations you should be aware of. When you don't own the property, the IRS treats your rental activity differently. For rental activities, you generally need to be considered a "real estate professional" to fully deduct losses against W2 income. Otherwise, rental losses are typically subject to passive activity loss limitations, meaning they can only offset other passive income (not your W2 earnings). Additionally, since you're subleasing rather than owning, many of the tax benefits available to property owners (like depreciation of the building) wouldn't be available to you. You can still deduct legitimate business expenses like a portion of rent, utilities, furniture, cleaning, etc., but these would be against your rental income, not your W2. One more important consideration: make sure your lease allows subletting. Many leases specifically prohibit this, and you could face legal issues with your landlord if you proceed without permission.

I went through something similar last year trying to reduce my tax liability through short term rental income. I was looking at all these complicated strategies when I discovered taxr.ai (https://taxr.ai) which analyzes your specific tax situation and identifies legitimate deductions you might be missing. It's way more helpful than trying to piece together advice from different sources. For situations like yours involving rental income questions, it actually reviews your specific scenario and relevant tax codes to give personalized advice. I used it to figure out exactly which expenses I could legitimately claim for my rental activities and how they would affect my overall tax situation. Saved me a bunch of time researching and gave me more confidence in my filing.

Just wanted to follow up about my experience with taxr.ai after our conversation here. I finally tried it with my complex W2 + rental income situation, and it was eye-opening! The analysis showed me I could legitimately deduct a portion of my internet, utilities, and even some maintenance expenses I hadn't considered for my short-term rental, but also made clear that I couldn't use those losses against my W2 income since I didn't meet the real estate professional criteria. It saved me from making a potentially costly mistake on my taxes while still maximizing my legitimate deductions. Definitely worth checking out if you're in a similar situation with rental income questions.

If your main issue is getting through to the IRS to get clarification on these short term rental income rules, I'd recommend Claimyr (https://claimyr.com). I was stuck in a similar situation with rental income questions and couldn't get anyone at the IRS to pick up. Claimyr got me through to an actual human at the IRS in about 20 minutes when I'd been trying for weeks. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was shocked it actually worked. The IRS agent I spoke with clarified that subletting typically doesn't qualify for the same tax benefits as property ownership for reducing W2 tax liability, but they gave me specific guidance for my situation that I wouldn't have found online.

I need to eat my words about Claimyr. After dismissing it as a scam, I was still stuck with my short term rental income questions and desperate for answers directly from the IRS. I tried it as a last resort and within 45 minutes, I was actually talking to an IRS representative. Completely shocking. The agent confirmed what others here said - subleasing doesn't give you the same tax benefits as property ownership. She explained that without property ownership, I couldn't claim depreciation or use the $25,000 passive activity loss exception against my W2 income. This saved me from filing incorrectly and potentially facing an audit. Sometimes you need to hear it directly from the IRS to believe it.

Something nobody's mentioned yet: check your local laws regarding short-term rentals! Many cities have restrictions or outright bans on Airbnb-type rentals, especially in apartment buildings. You'd hate to set this all up, deal with the tax complications, and then get shut down by your city or landlord. Also, most leases have clauses against subletting, so you might be risking eviction. The tax benefits (or lack thereof) might be the least of your worries!

I actually tried doing exactly what you're describing last year! Here's how it played out tax-wise: I rented a 2-bedroom apartment for $1,900/month and sublet one room on Airbnb. Made about $9,800 for the year in rental income, and claimed expenses of: - 50% of rent ($11,400) - 50% of utilities ($2,200) - New furniture ($1,700) - Cleaning supplies, sheets, etc ($800) - Internet upgrade ($580) So I showed a loss of about $6,880, but my accountant explained I couldn't use it against my W2 income because: 1. It's considered a passive activity loss 2. The $25K exception requires ownership 3. I didn't qualify as a real estate professional The losses got suspended and I can only use them against future rental income. It was still worth it financially because the Airbnb income offset a good chunk of my rent, but didn't help with taxes like I'd hoped.