4. Real Estate Inventories and Capitalized Interest

Real estate inventories are summarized as follows:



	December 31,
	2017		2016
	(Dollars in thousands)
Deposits and pre-acquisition costs	$	35,846	$	38,723
Land held and land under development	47,757		98,596
Homes completed or under construction	302,884		93,628
Model homes	29,656		55,981
	$	416,143	$	286,928

All of our deposits and pre-acquisition costs are nonrefundable, except for refundable deposits of $0.8 million and $4.1 million as of December 31, 2017 and 2016, respectively.

Land held and land under development includes land costs and costs incurred during site development such as development, indirects, and permits. Homes completed or under construction and model homes (except for capitalized selling and marketing costs, which are classified in other assets) include all costs associated with home construction, including land, development, indirects, permits, materials and labor.

In accordance with ASC 360, Property, Plant and Equipment ("ASC 360"), inventory is stated at cost, unless the carrying amount is determined not to be recoverable, in which case inventory is written down to its fair value. We review each real estate asset at the community-level, on a quarterly basis or whenever indicators of impairment exist. For the years ended December 31, 2017 and 2016, the Company recognized real estate-related impairments of $2.2 million and $3.5 million, respectively, in cost of sales resulting in a decrease of the same amount to pretax income for our homebuilding segment. Fair value for the homebuilding projects impaired during 2017 and 2016 were calculated using either a land residual value analysis or under a discounted cash flow model. The project cash flows were discounted at an 8% rate for 2017 and rates ranging from 10-14% for 2016. Fair value for the land sales project impaired during 2016 was determined using the land purchase price included in the executed sales agreement, less the Company's cost to sell. The following table summarizes inventory impairments recorded during the years ended December 31, 2017, 2016 and 2015:



	Year Ended December 31,
	2017		2016		2015
	(Dollars in Thousands)
Inventory impairments:
Home sales	$	2,200	$	2,350	$	—
Land sales	—		1,150		—
Total inventory impairments	$	2,200	$	3,500	$	—

Remaining carrying value of inventory impaired at year end	$	5,921	$	30,225	$	—
Number of projects impaired during the year	1		3		—
Total number of projects subject to periodic impairment review during the year ⁽¹⁾	26		27		18


(1)	Represents the peak number of real estate projects that we had during each respective year. The number of projects outstanding at the end of each year may be less than the number of projects listed herein.

The home sales impairments of $2.2 million recorded during 2017 related to homes completed or under construction for one active homebuilding community located in Southern California. This community was experiencing a slow monthly sales absorption rate, and the Company determined that additional incentives were required to sell the remaining homes and lots at estimated aggregate sales prices that would be lower than its previous carrying value.

The home sales impairments of $2.4 million recorded during 2016 related to land under development and homes completed or under construction for two active homebuilding communities. These communities were experiencing slow monthly sales absorption rates, and the Company determined that additional incentives were required to sell the remaining homes and lots at estimated aggregate sales prices that would be lower than its previous carrying values. One community is located in Southern California and the other is located in Northern California. The land sales impairments of $1.2 million related to land under development in Northern California that the Company intended to sell after certain improvements were complete. Subsequently, the land sale was not ultimately consummated and the Company made the determination during 2017 to develop and build homes on this land.

Interest is capitalized to inventory during development and other qualifying activities. Interest capitalized as a cost of inventory is included in cost of sales as related homes are closed. Interest capitalized to investment in unconsolidated joint ventures is amortized to equity in net income of unconsolidated joint ventures as related joint venture homes or lots close. For the years ended December 31, 2017, 2016 and 2015 interest incurred, capitalized and expensed was as follows:



	Year Ended December 31,
	2017			2016			2015
	(Dollars in thousands)
Interest incurred	$	21,978		$	7,484		$	4,722
Interest capitalized to inventory	(20,394		)	(7,484		)	(4,722		)
Interest capitalized to investment in unconsolidated joint ventures	(1,584		)	—			—
Interest expensed	$	—		$	—		$	—

Capitalized interest in beginning inventory	$	6,342		$	4,190		$	2,328
Interest capitalized as a cost of inventory	20,394			7,484			4,722
Capitalized interest acquired from unconsolidated joint venture at consolidation	738			—			—
Contribution to unconsolidated joint ventures	—			(1		)	(264		)
Previously capitalized interest included in cost of sales	(11,021		)	(5,331		)	(2,511		)
Interest previously capitalized as a cost of inventory, included in other expense	—			—			(85		)
Capitalized interest in ending inventory	$	16,453		$	6,342		$	4,190

Capitalized interest in beginning investment in unconsolidated joint ventures	$	—		$	—		$	—
Interest capitalized to investment in unconsolidated joint ventures	1,584			—			—
Capitalized interest transferred from investment in unconsolidated joint venture to inventory upon consolidation	(76		)	—			—
Previously capitalized interest included in equity in net income of consolidated joint ventures	(36		)	—			—
Capitalized interest in ending investments in unconsolidated joint ventures	$	1,472		$	—		$	—
Total capitalized interest in ending inventory and investments in unconsolidated joint ventures	$	17,925		$	6,342		$	4,190

Capitalized interest as a percentage of inventory	4.0		%	2.2		%	2.1		%
Interest included in cost of sales as a percentage of home sales revenue	2.0		%	1.0		%	0.9		%

Capitalized interest as a percentage of investment in and advances to unconsolidated joint ventures	2.6		%	—		%	—		%

Contribution to unconsolidated joint ventures relates to interest capitalized as a cost of inventory, which was then contributed by the Company to unconsolidated joint ventures formed in each of 2016 and 2015.