4.4.3 Capitalized Interest

For new money transactions, the issuer may use bond proceeds to pay interest on the bonds starting on the issue date and ending on the later of 3 years from that date or 1 year after the date on which the project is placed in service. This is called capitalizing interest or interest costs. For qualified private activity bonds (described further below), however, only interest that accrues before the date the project is placed in service is treated as a qualifying cost for purposes of the bonds, which may limit the amount of interest that can be financed.