In spite of the voluminous literature on property tax capitalization,
this paper is the first to derive a discount rate empirically. The pap
er uses an unique data set from a Mello-Roos Community Facility Distri
ct (CFD), where taxes are expected to be totally capitalized into prop
erty values. Using a standard hedonic pricing model, the results show
that buyers of homes within the CFD capitalize taxes into the prices o
f purchased properties at a discount rate of around four percent.