Real Estate Inventories

Real estate inventories consisted of the following (in thousands):



	December 31, 2018		December 31, 2017
Real estate inventories owned:
Homes completed or under construction	$	959,911	$	793,685
Land under development	1,743,537		1,934,556
Land held for future development	201,874		138,651
Model homes	238,828		211,658
Total real estate inventories owned	3,144,150		3,078,550
Real estate inventories not owned:
Land purchase and land option deposits	71,909		27,003
Total real estate inventories not owned	71,909		27,003
Total real estate inventories	$	3,216,059	$	3,105,553

Homes completed or under construction is comprised of costs associated with homes in various stages of construction and includes direct construction and related land acquisition and land development costs. Land under development primarily consists of land acquisition and land development costs, which include capitalized interest and real estate taxes, associated with land undergoing improvement activity. Land held for future development principally reflects land acquisition and land development costs related to land where development activity has not yet begun or has been suspended, but is expected to occur in the future. The real estate inventories owned balance was impacted by our one-time cumulative adjustment entry resulting from the adoption of ASC 606. As a result of our cumulative adjustment, the December 31, 2017 balance decreased by $49.3 million on January 1, 2018. For further details, see Note 1, Organization and Summary of Significant Accounting Policies.

During the fourth quarter of 2018, we acquired a Dallas-based homebuilder for an all cash purchase price of approximately $61.5 million. This transaction was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations ("ASC 805"). As a result of this transaction, we recorded approximately $63.2 million of real estate inventories owned, approximately $5.5 million of other assets and approximately $7.2 million of accounts payable and other accrued liabilities. As of December 31, 2018, the purchase price accounting reflected in the accompanying financial statements is substantially complete and is based on estimates and assumptions that are subject to change within the measurement period that may impact the fair value of the assets and liabilities above (including inventories, other assets and accrued liabilities). All net assets and operations acquired in this transaction are included in the Trendmaker Homes reporting segment in Note 2, Segment Information. This transaction did not materially impact our statement of operations for the year ended December 31, 2018.

Real estate inventories not owned represents deposits related to land purchase and land and lot option agreements as well as consolidated inventory held by variable interest entities. For further details, see Note 7, Variable Interest Entities.

Interest incurred, capitalized and expensed were as follows (in thousands):



	Year Ended December 31,
	2018			2017			2016
Interest incurred	$	91,631		$	84,264		$	68,306
Interest capitalized	(91,631		)	(84,264		)	(68,306		)
Interest expensed	$	—		$	—		$	—
Capitalized interest in beginning inventory	$	176,348		$	157,329		$	140,311
Interest capitalized as a cost of inventory	91,631			84,264			68,306
Interest previously capitalized as a cost of inventory, included in cost of sales	(83,579		)	(65,245		)	(51,288		)
Capitalized interest in ending inventory	$	184,400		$	176,348		$	157,329

Interest is capitalized to real estate inventory during development and other qualifying activities. Interest that is capitalized to real estate inventory is included in cost of home sales as related units are delivered. Interest that is expensed as incurred is included in other income, net on the consolidated statements of operations.

Real Estate Inventory Impairments and Land Option Abandonments

Real estate inventory impairments and land option abandonments consisted of the following (in thousands):



	Year Ended December 31,
	2018		2017		2016
Real estate inventory impairments	$	—	$	854	$	—
Land and lot option abandonments and pre-acquisition costs	5,085		1,199		1,470
Total	$	5,085	$	2,053	$	1,470

Impairments of real estate inventory relate primarily to projects or communities that include homes completed or under construction. Within a project or community, there may be individual homes or parcels of land that are currently held for sale. Impairment charges recognized as a result of adjusting individual held-for-sale assets within a community to estimated fair value less cost to sell are also included in the total impairment charges above.

In addition to owning land and residential lots, we also have option agreements to purchase land and lots at a future date. We have option deposits and capitalized pre-acquisition costs associated with the optioned land and lots. When the economics of a project no longer support acquisition of the land or lots under option, we may elect not to move forward with the acquisition. Option deposits and capitalized pre-acquisition costs associated with the assets under option may be forfeited at that time.

Real estate inventory impairments and land option abandonments are recorded in cost of home sales and cost of land and lot sales on the consolidated statements of operations.