6. CAPITALIZED INTEREST AND REAL ESTATE TAXES

Interest and real estate taxes incurred relating to the development of lots and parcels are capitalized to real estate held for development and sale during the active development period, which generally commences when borrowings are used to acquire real estate assets and ends when the properties are substantially complete or the property becomes inactive. A project becomes inactive when development and construction activities have been suspended indefinitely. Interest is capitalized based on the interest rate applicable to specific borrowings or the weighted average of the rates applicable to other borrowings during the period. Interest and real estate taxes capitalized to real estate held for development and sale are expensed as a component of cost of sales as related units are sold. The following table is a summary of interest and real estate taxes incurred and capitalized and interest and real estate taxes expensed for units settled:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Total interest incurred and capitalized	$	439	$	8	$	904	$	52
Total real estate taxes incurred and capitalized		20		34		96		126

Total interest and real estate taxes incurred and capitalized	$	459	$	42	$	1,000	$	178

Interest expensed as a component of cost of sales	$	1,071	$	627	$	1,975	$	1,245
Real estate taxes expensed as a component of cost of sales		100		55		205		117

Interest and real estate taxes expensed as a component of cost of sales	$	1,171	$	682	$	2,180	$	1,362

When a project becomes inactive, its interest, real estate taxes and indirect production overhead costs are no longer capitalized but rather expensed in the period in which they are incurred. Following is a breakdown of the interest, real estate taxes and indirect costs related to inactive projects.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Total interest incurred and expensed for inactive projects	$	16	$	1,088	$	73	$	1,743
Total real estate taxes incurred and expensed for inactive projects		14		47		47		95
Total production overhead incurred and expensed for inactive projects		88		57		224		108

		118		1,192		344		1,946
Amounts reclassified to discontinued operations		—		—		—		(154	)

	$	118	$	1,192	$	344	$	1,792