Which item is excluded from operating expenses?

• A. Property taxes
• B. Utilities
• C. Insurance
• D. Debt service

Answer: (D)

Operating expenses are the costs needed to run the property on a day-to-day basis. Items like property taxes, utilities, and insurance fit here because they are ongoing costs required for operation. Debt service, which covers the loan’s principal and interest payments, is a financing cost, not an operating cost. It affects cash flow after considering operating performance, not the day-to-day operating metric itself. That’s why debt service is excluded from operating expenses—and why Net Operating Income is calculated before accounting for debt service.