Online practice exam question 82

The answer sheet for this exam gives the correct answer as "b"

The question asked is:What is deducted from gross income to arrive at net operating income?

a. taxes
b. insurance
c. vacancy
d. debt service

My answer was c, and looking through the course book, it still seems to be c.

Can you tell me, if it isn't C, and the reason?

[wade]

This is a tricky question. Insurance (b) is the correct and best answer. Taxes and debt services are deducted from the Net Operating Income (NOI). Vacancy is deducted from the Potential Gross Income (PGI). This leaves insurance, which is deducted from the Effective Gross Income (EGI). It is true that one cannot get to the NOI without deducting vacancy from the PGI; the question is specifically asking what is deducted from the gross income. This is a very good example of a licensing exam style question. One can never assume anything. For example, property taxes would be deducted from the EGI, but the answer choice of taxes (a) does not specify property taxes, just taxes. One should not assume that taxes are property taxes. I hope that this is helpful.