What must be deducted from effective gross income to determine net operating income?

To determine net operating income (NOI) from effective gross income (EGI), one must deduct operating expenses related to the property. This typically includes expenses that are necessary for the day-to-day operations of the property but does not include financing costs, such as loan payments, or capital expenditures which are long-term investments in the property.

Capital expenditures are significant costs incurred for improving or maintaining long-term value of a property and are not included in the calculation of NOI, as they are not considered operating expenses. Instead, these expenditures affect future cash flows and asset value.

On the other hand, while property taxes and maintenance fees are deductible operating expenses for calculating NOI, they are not capital expenditures. Hence, they would be classified differently in the context of this question. Ultimately, the primary focus when calculating net operating income should be centered around ongoing operational costs and expenses, rather than one-time or significant capital investments. Therefore, capital expenditures would be seen as the correct deduction when distinguishing between effective gross income and net operating income in this context.