Please do not copy and paste the other answers posted earlier, give me a detailed explanation. Thank you.

Taxpayer is constructing a new residential building that he is planning to rent to tenants. Construction costs totaled $3,000,000 and were financed by obtaining a loan of $750,000 from First National Bank.

The taxpayer also incurred $25,000 in costs related to the leasing of equipment used exclusively to construct the property.

The balance of funds came from a previously outstanding loan of $1,275,000 from Second National Bank which was incurred two years before the construction began.

Taxpayer has no other funds or outstanding debt.

Assume the interest charged for both loans was 10% and the construction period lasted for one year. How much of the interest, if any, must be capitalized during the construction period?