The capitalizable share of an AI build
A common rule of thumb is that roughly half of an internal software build cost is capitalizable, with the rest expensed as preliminary and post-implementation work. Treat this as a defensible range, not a precise statistic: the actual share depends on how much of the spend falls in the development window and is directly attributable ASC 350-40-25. Evidence it per project.
Where the rule of thumb comes from
The intuition is that a software project spends materially on evaluation and vendor selection before the development window (expensed) and on operation and maintenance after it (expensed), leaving the directly attributable development-window cost, often a bit over half, as the capitalizable portion. This is a planning heuristic for AI builds, not a rate you can post without support.
What drives the share up or down
- Up: a long, well-defined development window with heavy directly attributable compute and engineering.
- Down: heavy upfront experimentation, significant development uncertainty, or a large ongoing run component.
Posts to
Primary sources
- [S1] KPMG: Hot Topic: Accounting for internal-use software (ASC 350-40) (US GAAP)
- [S4] Weaver: Navigating internally developed software costs: U.S. GAAP vs tax treatment (US GAAP)
Ledger current as of 2026-07-24. A position and a citation, not accounting advice. See how we cite.