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Margaret has pretty much cleared the clouds on this one. I'm going to print the entire disussion and place it in the client file.The client provided utility bills for her home and this along with the FRV will likely just about exempt the HA from any tax. Many thanks to all as I was in the weeds on this one. ( I am sure there are some that feel I stay in the weeds.)

Margaret and Lion provided excellent additional detail on the subject. I'll just add that your nephew's then CPA you referenced was handling it incorrectly. He likely achieved the same result, so there was no negative tax consequence. But he must have been doing some sort of override of the software (unless the return was prepared by hand...).

ATX does, indeed, have a proper worksheet to use for clergy called 1040 Clergy. It is pretty good, I think, and puts the right numbers in the right places. Schedule C is used when the clergy person has additional income from being a guest minister, is paid separately for officiating at weddings or funerals or other income sources not part of the salary from the church. Only those expenses related to that income are typically used to offset the income (mileage, other transportation, etc.). Typically mileage directly related to the performance of regular duties is reimbursed by the church as are other professional expenses - books, conferences approved by the governing body, etc. As ministers usually exempt themselves from SS and MC, they are subject to SE tax on the salary, any Sch. C net income, and the housing allowance. Only the housing allowance is not subject to income tax - unless there is excess. That is the minister must provide proof that the housing allowance was used in total for housing. In the case of your client, FRV means Fair Rental Value. A local realtor should be able to provide that by comparing a house of the comparable size and amenities to the market. Your client should also provide the total of the actual expenses and utilities. Actual expenses can be supplies, maintenance, telephone, cable, etc. This should exceed the housing allowance. If not, and the fair rental value does not, the excess is taxable income. I'm a long time subscriber to Church & Clergy Tax Guide, have had several clergy clients, and was church treasurer for many years. I won't say I know it all but do have resources available should you have questions. There are also a few others on this forum with a wealth of experience in this area.