Preheat oven to 350 degrees. Line a 12-cup muffin tin with paper liners. With an electric mixer on medium speed, beat 1 stick butter and the granulated sugar until pale and fluffy. Beat in eggs, one at a time, and vanilla. Reduce speed. Beat in flour, baking powder, and salt, then milk. Spoon into cups. Bake until a cake tester comes out clean, 15 to 16 minutes. Let cool.
Beat cream cheese, remaining 1/2 stick butter, the confectioners' sugar, and coconut extract until fluffy. Frost cupcakes, and sprinkle with coconut.