Which item is an operating expense?

Which item is an operating expense?

• A. Mortgage payments
• B. Utilities
• C. Depreciation
• D. Income taxes

Answer: (B)

Operating expenses are the costs required to run the property on a day‑to‑day basis and to generate rental income. Utilities fit this role because they are the ongoing services (electricity, water, heat, etc.) that tenants rely on to occupy the space, and they are routinely paid as part of operating the building. Mortgage payments, on the other hand, are debt service—financing costs paid to lenders rather than costs of operating the property. Depreciation is a non‑cash accounting expense used for tax purposes, not a cash cost of daily operations. Income taxes are taxes on the owner’s overall income, not costs tied to running the property. Therefore, utilities are the operating expense among the options.

Operating expenses are the costs required to run the property on a day‑to‑day basis and to generate rental income. Utilities fit this role because they are the ongoing services (electricity, water, heat, etc.) that tenants rely on to occupy the space, and they are routinely paid as part of operating the building.

Mortgage payments, on the other hand, are debt service—financing costs paid to lenders rather than costs of operating the property. Depreciation is a non‑cash accounting expense used for tax purposes, not a cash cost of daily operations. Income taxes are taxes on the owner’s overall income, not costs tied to running the property. Therefore, utilities are the operating expense among the options.