Which expense type can be deducted before calculating net operating income?

Fixed expenses are indeed the correct choice when determining what can be deducted before calculating net operating income (NOI). In real estate, fixed expenses typically refer to costs that do not fluctuate with the occupancy level of a property, such as property taxes, insurance, and maintenance. These expenses must be accounted for to accurately assess the net operating income, which reflects the revenue generated by the property after all operating costs have been deducted.

Calculating NOI involves subtracting all operating expenses from the effective gross income. Fixed expenses are part of these operating costs and need to be deducted first to arrive at a clear picture of the property's profitability. This is essential for property owners and investors to evaluate the performance of their investment accurately.

Other expense types mentioned, such as property appreciation, sales commissions, and debt service, do not factor into the NOI calculation in the same way. Property appreciation is not an expense at all; it’s an increase in value over time. Sales commissions are typically accounted for in different contexts, often during the sale of the property, not during operational income calculations. Debt service refers to mortgage payments, which are financial obligations and not operating expenses, and are accounted for after NOI when determining cash flow. Hence, fixed expenses are essential for accurate calculation of operating