Legal Definitions - clear annual value

Clear annual value refers to the net financial benefit or income generated by a property or asset over a one-year period, after all necessary and legitimate expenses associated with its ownership, maintenance, and operation have been deducted. It represents the true yearly worth or profit derived from the asset, free from encumbrances or costs, and is often used for valuation, taxation, or determining distributable income.

• Example 1: Rental Property Income

  Imagine a landlord who owns a small apartment building. Over a year, the building generates $90,000 in gross rental income. However, the landlord also incurs expenses such as $12,000 for property taxes, $4,000 for building insurance, $8,000 for routine maintenance and repairs, and $9,000 for property management fees. To calculate the clear annual value, these expenses are subtracted from the gross income: $90,000 (gross income) - ($12,000 + $4,000 + $8,000 + $9,000) = $90,000 - $33,000 = $57,000. This $57,000 represents the net yearly financial benefit the landlord receives from the property after all essential costs are covered.

• Example 2: Agricultural Land Productivity

  Consider a farmer who owns a plot of land used for growing corn. In a particular year, the sale of the harvested corn yields $150,000. However, the farmer's operational costs for that year include $25,000 for seeds, fertilizer, and pesticides, $15,000 for equipment fuel and maintenance, $40,000 for hired labor, and $8,000 for property taxes on the land. The clear annual value of the farmland's productivity would be calculated as $150,000 (gross sales) - ($25,000 + $15,000 + $40,000 + $8,000) = $150,000 - $88,000 = $62,000. This figure indicates the net economic benefit derived from using the land for agriculture over the year.

• Example 3: Trust Fund Distribution

  A trust fund is established to provide annual income to a beneficiary. The trust holds various investments and a small commercial office unit, generating a total gross income of $75,000 in a year. The trust also has expenses, including $7,000 for trustee administration fees, $3,000 for investment management charges, and $5,000 for property taxes and maintenance on the commercial unit within the trust. The clear annual value of the trust's income, which is often the amount available for distribution to the beneficiary or for tax purposes, is $75,000 (gross income) - ($7,000 + $3,000 + $5,000) = $75,000 - $15,000 = $60,000. This represents the net income generated by the trust's assets after all necessary expenses are paid.