process of deferring interest as an asset rather than an expense. Interest charges can be deferred only for interest incurred on borrowed funds for the self-construction of an asset or for discrete projects (e.g., real estate). The amount of interest capitalized is based on the company's actual borrowings and interest payments. The interest rate to be used is the rate on the specific borrowing associated with that self-constructed asset. If this cannot be achieved, the weighted-average interest rate on corporate debt is used.