Which statement about debt service is accurate?

Which statement about debt service is accurate?

• A. Annual principal and interest payments on a loan
• B. Operating expenses for the property
• C. Depreciation deductions
• D. Vacancy losses

Answer: (B)

Debt service refers to the cash required to repay a loan, specifically the annual payments of principal and interest. This figure is what a property must generate in cash flow to cover financing costs. It’s not the operating expenses of the property (which are costs like maintenance and utilities), not the depreciation deductions (which are non-cash tax write-offs), and not vacancy losses (which reflect potential income that isn’t collected). So the accurate description is the annual principal and interest payments on a loan.

Debt service refers to the cash required to repay a loan, specifically the annual payments of principal and interest. This figure is what a property must generate in cash flow to cover financing costs. It’s not the operating expenses of the property (which are costs like maintenance and utilities), not the depreciation deductions (which are non-cash tax write-offs), and not vacancy losses (which reflect potential income that isn’t collected). So the accurate description is the annual principal and interest payments on a loan.