1) is depreciation something that I am now obligated to calculate and include with my personal tax return (form 1040)?
Yes. If you do not take depreciation, then you'll still lose in the long run. When you sell the property in the future, you are required to recapture *and* pay taxes on that recaptured depreciation in the tax year you sell the property. If you do not depreciate the property then you are still required to recapture the depreciation you *should* have taken, and pay taxes on it. So you lose any way you look at it.
2) because my renter paid his portion of the split utilities/electric costs directly to me, and I then paid the respective bills, does that mean that I must now include my renter's split of the utilities/electric costs as part of my rental income?
Yes. All income received from all sources for any reason pertaining to the rental is included with and reported as rental income. Likewise, the expenses you pay for the rental portion are deductible as rental expenses.
For example, if you rent out 20% of your floor space and charge your tenant 20% of the utility bills in addition to the rent they pay, then you rental income is the total amount of money they pay you for everything.
Then on SCH E you can claim/deduct 20% of the utility bills you pay as a rental expense.
Make sure you keep meticulous records of everything in case you're ever questioned on it.
