How Do I Itemize Deductions and Claim PAUD as a Deductible?

Tax deductions reduce taxable income, potentially lowering what you owe to the IRS. Some taxpayers choose to itemize instead of taking the standard deduction to maximize benefits. This requires listing eligible expenses that can be deducted from income.

Understanding how to itemize deductions and claim specific expenses, such as Potentially Allowable Unreimbursed Deductions (PAUD), requires careful attention to tax rules and documentation.

Eligibility Criteria

To itemize, your total eligible expenses must exceed the IRS-set standard deduction for your filing status. For 2024, the standard deduction is $14,600 for single filers, $29,200 for married couples filing jointly, and $21,900 for heads of household. If your deductible expenses do not exceed these amounts, itemizing may not be beneficial.

Married couples filing separately must use the same deduction method—if one itemizes, the other cannot take the standard deduction. Nonresident aliens generally cannot claim the standard deduction, making itemization their only option.

Some deductions have income-based limits. Medical expenses are deductible only if they exceed 7.5% of adjusted gross income (AGI). State and local tax deductions, including property and income taxes, are capped at $10,000 ($5,000 for married filing separately).

Categories That May Qualify

Several expenses can be itemized if they meet IRS guidelines. These deductions must be documented and reported on Schedule A (Form 1040).

Mortgage Interest

Homeowners may deduct mortgage interest on a primary or secondary home, subject to limits. As of 2024, interest is deductible on mortgage debt up to $750,000 for homes purchased after December 15, 2017. For mortgages taken out before that date, the limit is $1 million.

Interest on home equity loans or lines of credit is deductible only if the funds were used for home improvements. Mortgage insurance premiums may also be deductible, though this phases out for taxpayers with an AGI above $100,000 ($50,000 if married filing separately).

To claim this deduction, you’ll need Form 1098 from your lender, showing the total interest paid. If you have multiple loans, each lender should issue a separate Form 1098.

Charitable Contributions

Donations to IRS-recognized nonprofits, such as 501(c)(3) organizations, can be deducted. Political donations and gifts to individuals do not qualify.

Cash donations are generally deductible up to 60% of AGI. Non-cash contributions, such as clothing or household items, must be in good condition, with their value determined using fair market estimates. Donations of property worth more than $5,000 require an independent appraisal.

To substantiate your deduction, keep records such as bank statements, receipts, or written acknowledgments from the charity. Donations over $250 require a formal acknowledgment letter specifying the amount and stating whether any goods or services were received in return.

Medical Expenses

Out-of-pocket medical and dental expenses are deductible if they exceed 7.5% of AGI. Eligible costs include doctor visits, prescription medications, surgeries, and some long-term care expenses. Health insurance premiums may qualify if not reimbursed by an employer or paid with pre-tax dollars.

Transportation costs for medical care, such as mileage for driving to appointments, can be included. The IRS allows a standard mileage rate of 22 cents per mile for medical travel in 2024. Lodging expenses for medical treatment may also be deductible, up to $50 per night per person.

To claim this deduction, maintain detailed records, including receipts, invoices, and insurance statements. Only expenses paid during the tax year can be deducted. Reimbursements from insurance or a health savings account must be excluded from your deduction.

Claiming PAUD

Potentially Allowable Unreimbursed Deductions (PAUD) include certain costs incurred without reimbursement, provided they meet IRS criteria. These deductions often relate to work-related expenses, investment costs, or other qualifying expenditures.

Some unreimbursed employee expenses may qualify, though the Tax Cuts and Jobs Act (TCJA) suspended most miscellaneous itemized deductions for employees through 2025. However, certain professions—such as performing artists, fee-based government officials, and active-duty Armed Forces members—can still deduct job-related expenses. This may include job-specific equipment, professional licensing fees, or required training not covered by an employer.

Investment-related expenses, such as advisory fees or costs associated with producing taxable income, may also fall under PAUD. While the TCJA eliminated deductions for many investment expenses, some costs remain deductible if directly tied to taxable income and not reimbursed by a third party.

Maintaining Accurate Records

Proper documentation is essential when itemizing deductions, as the IRS may request evidence to substantiate claims. Keep digital backups of receipts, invoices, and financial statements to prevent loss or damage. Many tax preparation software programs allow for direct integration of scanned documents.

For expenses requiring valuation, such as donated property, maintaining contemporaneous records is necessary. The IRS scrutinizes deductions lacking sufficient proof, particularly when fair market value estimates are involved. If an appraisal is required, it must meet the standards outlined in IRS Publication 561.

Bank statements and credit card records can support deductions but are not always sufficient on their own. Detailed logs specifying the nature of an expense, the date incurred, and its tax-deductible purpose can strengthen a taxpayer’s position in the event of an audit. For business-related deductions, maintaining a separate account for deductible expenses can simplify record-keeping and prevent commingling of personal and business transactions.