FAR R&D and Software · Updated November 2026
R&D vs Software Costs: When Do You Expense and When Do You Capitalize?
Treatment depends on what is being developed and where the project is in its lifecycle.
General R&D
Many research and development costs are expensed as incurred under applicable U.S. GAAP.
Software for sale
Software developed for external sale can have different treatment before and after the relevant technological milestone.
Internal-use software
Software built for the company's own use follows a different framework with stage-based capitalization rules.
Alternative future use
Certain equipment or materials purchased for R&D can be capitalized when they have an alternative future use.
The takeaway
Purpose and development stage determine the accounting.
Related Summit guides
FAQ
Is all R&D capitalized?
No.
Is all software development immediately expensed?
No.
Why does technological feasibility matter?
It can affect capitalization timing for certain software developed for external sale.