What Is Loaded Cap Rate?
A loaded cap rate is a capitalization rate with the property's effective tax rate added to it. Appraisers and assessors use it when valuing property for tax purposes: income is capitalized before real estate taxes, because the tax bill itself depends on the value being estimated.
Loaded Cap Rate in plain English
A loaded cap rate adds the property tax rate to an ordinary cap rate. It is used mainly in property tax appeals and assessments, where the tax bill depends on the very value being estimated.
Instead of subtracting the current taxes from income, the appraiser leaves taxes out of the expenses and "loads" the effective tax rate into the cap rate. Done correctly, both methods give the same value.
Formula
Loaded Cap Rate = Base Cap Rate + Effective Tax Rate- Base Cap Rate
- The market cap rate for similar properties, with taxes treated as an expense.
- Effective Tax Rate
- The annual property tax as a percentage of market value - not the nominal millage on an assessed value.
Related forms: Value = NOI before real estate taxes ÷ Loaded Cap Rate.
Only real estate taxes are loaded; every other operating expense stays in NOI.
Worked example
Valuing an office building for a tax appeal with a loaded cap rate
Illustrative example - round numbers, not current market data. Calculated with Reaixo's calculator engines.
Assumptions
- NOI before real estate taxes
- $120,000
- Market cap rate (taxes treated as an expense)
- 7.0%
- Effective tax rate (tax bill ÷ market value)
- 2.0%
| Step | Calculation | Result |
|---|---|---|
| 1. Loaded cap rate | 7.0% + 2.0% | 9.0% |
| 2. Indicated value | $120,000 ÷ 9.0% | $1,333,333 |
| 3. Check: taxes at that value | $1,333,333 × 2.0% | $26,667 |
| 4. Check: cap rate after taxes | ($120,000 − $26,667) ÷ $1,333,333 | 7.0% |
Indicated market value: $1,333,333. Loading the tax rate into the cap rate gives $1,333,333 without first guessing the tax bill, which itself depends on the value. The check shows it is the same answer as deducting taxes and capitalizing at 7.0%.
What this calculation leaves out
- The effective tax rate must be the tax as a share of market value, not the nominal millage on an assessed value that is a fraction of market value.
- Only real estate taxes are loaded; every other operating expense stays in NOI.
Why it matters
In a property tax appeal, deducting the current tax bill from NOI builds the assessment you are disputing into the valuation; loading the tax rate into the cap rate avoids that circularity.
Using the current, disputed tax bill as an expense lowers NOI and the value only slightly, which tends to support the existing assessment; the loaded method removes that bias.
When Loaded Cap Rate is used
- Income-approach valuations for property tax appeals of apartments, offices and retail buildings.
- Assessor mass appraisal of income property, where taxes would otherwise be circular.
- Checking whether an appraisal double-counted taxes - deducting them from NOI and also loading the rate.
Common mistakes
- Loading the nominal tax rate on assessed value when assessments are a fraction of market value.
- Deducting taxes from NOI and also loading the tax rate (double-counting).
- Confusing "loaded" with a cap rate adjusted for reserves or other costs - the established meaning is a tax load.
Compare and common questions
Loaded Cap Rate: frequently asked questions
Why use a loaded cap rate instead of deducting taxes?
Because the tax depends on the value. Deducting the current bill builds the disputed assessment into the valuation; loading the tax rate avoids that circularity.
How do you calculate a loaded cap rate?
Add the effective tax rate to the market cap rate. A 7% cap rate and a 2% effective tax rate give a 9% loaded rate.
What is an effective tax rate?
It is the annual property tax divided by market value. Where assessments are a fraction of market value, it is lower than the nominal rate on the assessment.
More Commercial & Appraisal Terms
Recommended next step
Find the base cap rate from NOI and price before adding the tax load.
Cap rate calculator →Apply it to a specific property: Cap Rate Analysis.
Sources and review
No regulator defines this term; the page follows common industry practice.
Where this applies: Not regulated. Investment and valuation ratios are industry and appraisal conventions; lenders, appraisers and analysts may define inputs differently, so check how a figure was calculated. Assessment appeal practice is set by each state and county.
Last reviewed: · Updated:
Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
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