I believe that the housing, transportation, and other major needs would be taxed just like the income they replace. (Or should be, in any case.)

This IRS page says that benefits are taxed like income: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employ...

My mother is self-employed, and there are strict rules about deducting business expenses (like home office square footage) but not personal expenses (like the rest of the house's square footage).