Prior to determining the treatment of capital expenditures in the calculation of NOI, it is important to distinguish these costs from operating expenses. In contrast to operating expenses, capital expenditures:

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Capital expenditures are investments in the property that increase its market value, unlike operating expenses which are for the day-to-day running of the property and are fully deductible in the year they are incurred. Capital expenditures typically include major improvements or additions that extend the useful life of the property, rather than minor repairs or maintenance expenses.

Prior to Determining the Treatment of Capital Expenditures in the Calculation