- Certain medical expenses
- Costs relating to the purchase of a principal residence
- Tuition and related educational fees and expenses
- Payments necessary to prevent eviction from, or foreclosure on, a principal residence
- Burial or funeral expenses
- Certain expenses for the repair of damage to the employee’s principal residence
For this discussion, I want to focus on the last of the approved expenses – expenses for the repair of damage to the employee’s principal residence. As one might expect, the tax code goes into greater detail on this hardship expense. To qualify for this hardship, not only must the damage be to the employee’s principal residence (and not to a vacation or rental home), but it must also qualify for the casualty deduction under tax code Section 165. While the hardship regulations do specify that the 10% rule doesnot apply, all other rules under Code Section 165 do apply.