“So do I report this on Schedule E?”----> Yes, you do; you will file Sch E on it and pay for the profit you make. However, you will be able to write off many items so start with a journal and start listing anything related to the home.; insurance, utilities, any fees, and any other expense to lessen your monthly profit . All of these items go on Sch E.
“If so there would obviously be a loss (sublet income < rental cost) but then it would trigger the Active/Passive question:”---->It depends on the situation; if your home is rented for 15 days or more and is used for personal purposes for more than 14 days or 10% for the days rented, whichever is greater, then allocable rental expenses are allowed only to the extent of your rental income. Allocable rental expenses are deducted in three separate steps;first you can deduct mortgage interest and r/e taxes, second, you can deduct utilities and maintenance expenses, and finally you can deduct depreciation ; for example, you rent the home for $2,500 for 150 days and uses it for personal purposes for 215 days. Since the home is rented for 15 days or more and you use the home for personal purposes for more than greater of 14 days or 10% of the days rented( you used the home for 215 days, more than 10% of 150 days rented), your home is subject to be vacation home limitations. A your personal use percentage is 59%; 215/365=59% and rental portionof the home is 41%, you can deduct 41% of interest and taxes, utilities and maintenance and depreciation. For example, as said above, your rental income is $2,500 , your mortgage interest and taxes are $3,000, your utilities and maintenance is $2,000, and your depreciation expense is $2,000, then you can deduct your expenses to the extent of your rental income, $2,500 , in this case; $2,500( rental income)-$3,000*41%-$2,000*41%( utilities and maintenance)- you can deduct ONLY $450(depreciation)=$0, so, $2,000-$450=$1,550(depreciation) is deductible as itemized deduction on Sch A of 1040.
“- If it's considered an Active Loss, I won't be able to offset anything since I have an extremely low taxable income in 2010 anyway, so would filing a Schedule E be really necessary?”----->actually there is term , ACTIVE LOSS, as far as I know; however, if you heavily involved in r/e rental activities, then you can qualify as having an active business rather than a passive activity( as you can see, MOST of rental activities are considered to be passive activities). If so, then your income and losses from qualifies rental activities will no longer be subject to passive loss limitation rule. To be considered to be active, you must MATERIALLY participate in the activity by earning more than 505 of your personal service is performed in real property trades or businesses and you need to perform more than 750 hours of service in r/e trade or business.
“- If it's considered a Passive Loss, would I be able to use the "passive loss carryover" in the future to offset any other passive rental income or would it need to be related to the same property (which of course would never be the case)?”---->your passive losses MUST be used to offset only passive income; any unused passive losses and credits are carried over and may used to offset futre passive income or taxes attributable to such income, respectively.