Preheat oven to 350°F (175°C) and line a 12-cup muffin tin with paper liners. In a medium bowl, whisk together the flour, granulated sugar, baking powder, and salt.

In a separate large bowl, cream together the softened unsalted butter and granulated sugar until light and fluffy. Beat in the eggs one at a time, then mix in the vanilla extract.

Gradually add the dry ingredients to the wet ingredients, alternating with the milk, beginning and ending with dry ingredients. Mix until just combined, being careful not to overmix.

Gently fold in the diced apples, ground cinnamon, and ground nutmeg until evenly distributed.

Divide the batter evenly among the prepared muffin liners, filling each about two-thirds full. Bake for 20-25 minutes, or until a toothpick inserted into the center of a cupcake comes out clean.

Remove from the oven and let the cupcakes cool in the muffin tin for a few minutes before transferring them to a wire rack to cool completely.

For the frosting, in a medium bowl, beat the softened cream cheese and softened unsalted butter together until smooth and well combined. Gradually add the powdered sugar, ground cinnamon, and vanilla extract, beating until the frosting is creamy and smooth.

If the frosting is too thick, add milk one tablespoon at a time until the desired consistency is reached.

Once the cupcakes are completely cool, frost them generously with the cinnamon cream cheese frosting.