Nonprofit Capital Campaign Costs: Rules for Expensing, Capitalizing, and Releasing Funds
One of the trickiest parts of a capital campaign is knowing how to treat the money you spend. Should it be expensed right away, or capitalized as part of a long-term asset? Additionally, at what point can you release the restricted funds raised during the campaign?
What to Capitalize
Capitalize costs directly tied to creating or acquiring long-term assets, such as:
- Construction costs including interest incurred on a construction loan (tracked through a construction-in-progress account)
- Major equipment and furnishings needed to ready the space for use
- Land purchases and related fees
- Architectural and design services
What to Expense
Expense costs that are tied to the campaign effort itself, including:
- Consulting fees for campaign strategy
- Marketing and promotional expenses
- Fundraising event costs
Releasing Donor Restrictions
Most campaign gifts come with restrictions as the funds must be used for the project itself. These restrictions can typically only be released when:
- The total costs incurred equal or exceed the funds raised.
- The long-term asset (for example, a building) has been placed into service.
In other words, you can’t release restricted funds just because bills need to be paid during construction. The release happens once the project is operational. However, an exception is that certain expenses, such as the cost of a professional fundraiser, may be allowed for release as the expenses occur, but only if this is clearly outlined in the campaign materials.
Set Your Nonprofit Up for Success
Classifying expenses correctly is necessary to ensure your campaign finances tell the right story. Capitalizing vs. expensing at the right time not only keeps you compliant but also builds donor trust. In Part 4, we’ll finish the Capital Campaign series by covering internal controls and audit preparation, ensuring your campaign can withstand scrutiny with confidence! Looking for more guidance? Get in touch with our nonprofit advisors to talk about your upcoming capital campaign and how we can help!
Missed parts 1 & 2? Learn how to get your finances organized from day one of your capital campaign in part 1. Learn the difference between donor commitments and how to plan for unfulfilled pledges in part 2.
