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Plain-English guide · for nonprofits
2 CFR 200.405 (Allocable Costs), explained in plain English
Updated October 2026
Under §200.405(a), a cost is allocable to a federal award when you can assign it to that award by the benefit the award got. Shared costs get split by benefit. And paragraph (c) is the hard line: never move a cost to another federal award because the first one ran out of money.
The section at a glance
| Paragraph | What it says |
|---|---|
| (a) | A cost is allocable if it is assignable to the award by the relative benefit received, in any of three ways |
| (b) | Every activity that benefits from your indirect costs gets its share of them, including unallowable activities and donated services |
| (c) | No charging a cost to another federal award to cover a shortfall or avoid a restriction |
| (d) | Split a shared cost by proportional benefit, or on any reasonable documented basis when the work is too interrelated to measure; specifically authorized equipment stays with its award |
| (e) | Contracts subject to the Cost Accounting Standards follow those standards instead |
Salaries are the cost you'll split across grants most often. The free time and effort certification template records each person's split, so your allocation has paper behind it. More on that in how to allocate staff time across grants.
Allocable is one of the allowable cost tests in §200.403, part of the Uniform Guidance, and it is easy to skip. A cost can be perfectly reasonable and still belong to a different grant than the one you charged it to.
The three ways a cost is allocable
It was incurred specifically for that award
The simple case.
It benefits the award and other work, and can be split on a reasonable basis
Shared rent, shared staff, shared insurance. The split has to reflect the relative benefit received, and you have to be able to explain the method.
It is necessary to overall operations and assignable in part
The indirect-cost case, handled through a rate at §200.414 rather than line by line.
The rule with teeth
Paragraph (c): a cost allocable to one federal award may not be charged to another to cover a shortfall, or to avoid a restriction in the award it belongs to. Moving a cost because the right grant ran out is the exact behavior the paragraph exists to stop, and it is a finding when it is found.
There is a narrow carve-out: where a cost is genuinely allowable under two awards, shifting can be permissible if federal statute, regulation, or the award terms allow it. That is a real allowance, not a general license, and it should be documented at the time.
Splitting a cost between grants
Paragraph (d) is the practical one. Where a cost benefits two or more projects in proportions you can determine, allocate it in those proportions. Where the proportions genuinely cannot be determined because the work is interrelated, the cost may be allocated on any reasonable documented basis.
The operative word is documented. "Any reasonable basis" is generous; "we split it evenly and never wrote down why" is not a basis.
Staff time is a shared cost with its own rules, at §200.430. A cost allocation method that contradicts your timesheets will not survive.
Equipment stays where it was bought
Paragraph (d) also answers a question about equipment, with one condition attached that matters. Where the purchase of equipment or another capital asset is specifically authorized under the award, the cost stays assignable to that award regardless of what you later use it for. A van specifically authorized and bought on Grant A stays Grant A's cost even when, no longer needed there, it is later used on Grant B. If the purchase was not specifically authorized, this paragraph does not reach you and the ordinary allocability rules do. Disposal is a separate matter, at §200.313.
What to actually do
Write the allocation basis down before the year, not after
Square footage for rent, headcount for insurance, certified time for salaries. A basis chosen at audit time is not a basis. It belongs in the written procedures for allowable costs that §200.302 on financial management requires.
Never move a cost to solve a funding problem
If a grant runs out, the cost is yours or it is unallowable. It is not the next grant's.
Make the timesheets and the allocation agree
A cost allocation plan that no time record supports is a contradiction an auditor will find.
This is general information, not legal or accounting advice. Federal grant rules change and are applied differently by different agencies and auditors. Check with your auditor, your grant officer, or an attorney before relying on any of it.
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Sources: 2 CFR Part 200 (eCFR), read 29 August 2026, re-checked 1 September 2026 and again 3 October 2026. Federal grant rules change; check the current text before relying on this.