Taxpayer is constructing a new building. Construction costs during the construction period totaled $20,000,000. While no debt was incurred to directly finance the construction, Taxpayer had an outstanding loan from ABC Bank for $5,000,000 (Loan 1) that was borrowed two years before the property was acquired. Taxpayer also borrowed $1,000,000 (Loan 2) when construction began to ensure it had adequate working capital available even though none of the funds were used for the construction. Taxpayer has no other outstanding debt. Assume the interest charged during the construction period was $500,000 on Loan 1 and $100,000 on Loan 2. How much of the interest, if any, must be capitalized?

a. $100,000 a. $420,000

b. $600,000 c. $100,000 d. $500,000

e. $180,000