# Capitalizing AI and Machine Learning Development Costs

AI and ML development doesn't fit one accounting box. Whether you capitalize depends on the AI's purpose and delivery — and ASU 2025-06's uncertainty gate defers capitalization for novel work.

AI and machine-learning development doesn't fit neatly into one accounting box. Whether you capitalize the cost depends on what the AI is **for** and how it's **delivered** — and [ASU 2025-06](/software-capitalization/asu-2025-06)'s new uncertainty test hits novel AI work especially hard.

## Which framework applies

| The AI is… | Framework | Treatment |
| --- | --- | --- |
| A pure **research tool** (e.g. drug discovery, materials simulation) | [ASC 730](/software-capitalization/glossary/asc-730) | **expensed** as incurred (R&D) |
| **Operational** — internal-use, or a hosted service you deliver | [ASC 350-40](/software-capitalization/glossary/asc-350-40) | **capitalize** once funded and probable-to-complete |
| **Embedded** in software you sell or license | [ASC 985-20](/software-capitalization/glossary/asc-985-20) | expensed until technological feasibility |

## Coding vs. exploration

Within development, there's a line that matters: **coding an algorithm into software** — and the compute, people, and cloud cost of that coding — is a capitalizable direct cost. **Non-coding algorithm exploration** by researchers, which is really R&D for a separate intangible, is expensed under ASC 730. (Note that "training" an AI model is a different thing from the expensed "training" of personnel.)

## Training-data costs (unsettled)

How you treat data acquired to train a model is genuinely contested, with three views in play:

- **Capitalize as a separate intangible (ASC 350-30)** — when the data is separately identifiable, controlled, and has alternative future use (e.g. usable to train multiple models);
- **Expense (ASC 730)** — when acquired for R&D with no alternative future use;
- **Capitalize within ASC 350-40** — as a direct cost of an internal-use project without alternative use.

Major firms (Deloitte, PwC, Crowe) diverge here, and all agree that data with **no** alternative future use can't be recognized as a standalone intangible. This is a live area — document your position and involve your auditors.

## Why ASU 2025-06 hits AI hard

AI projects routinely involve novel, unproven functionality and requirements that keep shifting — exactly the [significant development uncertainty](/software-capitalization/glossary/significant-development-uncertainty) that defers capitalization under ASU 2025-06. Expect more cost expensed early on novel AI builds, until the technology is proven through coding and testing and the scope settles.

## Document it

Because so much rides on judgment, set auditable policies up front: separate capitalizable coding and compute from expensed research exploration; track training-data acquisition by alternative-use status; and record when novel functionality is proven through coding and testing. That contemporaneous evidence is what an audit will ask for — and what [Quantify](/software-capex) captures from your delivery tooling.

## Frequently asked questions

### Can you capitalize AI development costs?

Sometimes. Operational AI built for internal use or a hosted service follows ASC 350-40 and is capitalizable once the project is funded and probable to complete; AI built purely as a research tool is expensed under ASC 730; AI embedded in software you sell follows ASC 985-20.

### Are AI training-data costs capitalized?

It's contested. Data with alternative future use may be recognized as a separate intangible; data acquired for R&D with no alternative use is expensed. Major firms diverge — document your position and consult your auditor.

### Does ASU 2025-06 change AI accounting?

It doesn't create AI-specific rules, but its significant-development-uncertainty gate defers capitalization for novel AI until the technology is proven through coding and testing.

## Capitalize software development costs in Jira — without the manual work

Quantify turns Jira activity into audit-ready software-capitalization data automatically — no manual timesheets.

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