Rita,
I know this is a really old post, but I just wanted to say, thank you. This has been a horrible thing to try to research as all the keywords you need, "Schedule C," "Housing Allowance," etc. are in all articles you don't need. How I missed the word "employee" on that page, I don't know.
The situation I was researching is an ordained, Board Certified Pastoral Counselor, running a practice as a sole proprietor and reporting on a Schedule C. A Form 4361 has been approved by the IRS, so none of the income from that Schedule C passes to the Schedule SE. The challenge was how to take the Housing Allowance. To my way of thinking, it would perhaps report on Line 27 of the Schedule C so it would reduce the AGI, but I just couldn't seem to find a way to trigger the forms needed in the software without entering the allowance from a W-2. I was hopeful the Schedule C practice should be able to designate the allowance. Your post is the first thing I've seen to give a good reason why I can't seem to make it work.
If any of you have any additional insight, please share.
Thanks again.