I'm looking at a house in Columbia with a very nice apartment basement.  I would live in the main part of the house, and rent the basement.  I was wondering how taxes are handled, and how expenditures are deducted.

This is the opinion of someone who has worked with rentals in MD for 20+ years.

Assuming you're going to declare this to the government, you may 1. Pay to have a license in order to rent it out, 2) make disclosures as to the presence of lead paint (builds up to '78) and be required to have a lead inspection prior to renting it, 3. Declare it as a source of income on your tax return. 4. If it's a source of income, a business, you can deduct money spent on some aspects of maintaining and upgrading the property (if you spend money on something that affects the whole house, then you can deduct for the rental portion as a percentage of the whole square footage of the finished space).

If there's one piece of caution that I can give you is to document absolutely everything, every communication with the tenants and prospective tenants, document the condition of the property before and after someone leaves, document the received and returned funds, etc.  Maryland is a nanny state and will always, always, side with the tenant, unless you have proof that what you said or did was not wrong.

Lastly, ALWAYS qualify your tenants; have an application and obtain signatures allowing you to order credits checks, rental history, etc., because people lie to you every single day! There are groups of renters well versed on the legal aspects of the business who will play victim and make you want to question the words of your mother and sell everything and move to the woods of Alaska.  

The hardest part of being a landlord is dealing with people. In the end, it is worth it, but qualify each and every one of your tenants, and know what you are and aren't allowed to say and do.  And as in any business, it doesn't matter that the guy who wants to rent is your friend; qualify him too!

Good luck!