1. A process of reflecting future income in present value and used to determine the value of property by considering its net income and a percentage of reasonable return on the investment. 2. Capitalization occurs when items owed on a loan are treated as part of a new principal balance. When arrears are capitalized the amount of the arrears is included in the principal before the interest is applied. Also a mathematical process for estimating the value of a property using a proper rate of return on the investment and annual net income expected to be produced by the property. [Income