When you have investment property, all of your "ordinary and necessary," in the parlance of the IRS, expenses are deductible. This is nothing like your personal residence for which you can only write off certain things. If you're spending money on running your property, it's probably a write off. You can claim those deductions against your rental income, reducing the total profit that is subject to other taxes. The IRS even lets you use losses on one property to offset profits on another.
Collect all of your receipts and payment records for the year on which you'll be reporting. If you do your taxes under the cash method, the IRS doesn't care when you got the bill. It's when you paid it that determines when you get the write off.
Categorize every expense to fit into the categories listed in the expense section of Schedule E. If you have expenses that don't fit into any of the 13 enumerated items (from Advertising to Utilities), group them into reasonable categories for inclusion as other expenses.
Total up the expenses in each category. For instance, if you spent $217 on cleaning supplies and $43 on light bulbs for a property, your total supplies cost would be $270.
Enter each expense total on its line in the column that corresponds to the particular property. If you only have one rental property, everything would go in Column A.
Enter your depreciation allowance on line 18. Generally, the depreciation for a residential rental property is equal to the original cost of the building, but not the land, divided by 27.5 (commercial rentals are divided by 39). However, calculating depreciation is relatively complicated and can be affected by when you bought the building, by any work that you did to it and by any tax-deferred exchanges that you may have done as a part of buying it. As such, you may need an accountant's help with this step.
Add up all of your expenses and enter them on line 20 of the Schedule E form.
Subtract your expenses from your income on line 21 to find your total profit or loss for your rental property.