Construction Interest Expense

Any interest that is paid during the construction phase of a building or other tangible property. The interest may be incurred directly as the result of a construction loan. Construction interest expense is treated differently than other types of business-related interest (see below).

Construction interest that is incurred on the construction of a structure intended for rental or business use is not deductible at the time that it is paid. This type of interest is added to the cost basis of the building instead. For this reason, it is also known as capitalized interest.