You do not enter the box 4 amount in TurboTax. You have to handle it manually. On the screen titled "Let's get the details from your form 1098", click on the link "What if I have something in box 4 of my 1098?"
"What if my 1098 has value in Box 4 (Refund of Overpaid Interest)?
Refund of Overpaid Interest in same Calendar Year
If overpaid interest was reimbursed in the same calendar year as paid it should be netted in Box 1 (Mortgage interest received). No action is required. Input your 1098 with the amount in Box 1.
For example, if you paid $5,000 in interest and were reimbursed $500 of that amount in the current year. Box 1 should reflect $4,500 as interest paid and nothing should be in Box 4.
Refund of Overpaid Interest in a different year
If you received a reimbursement of interest this year and in prior year you deduct the interest for a tax benefit you would reconcile the reimbursement.
Example: You overpaid $700 of interest last year and included the amount of your deductible interest on Schedule A. The next year you received the $700 back. The Bank sends you a 1098 that reflects $700 in Box 4 and nothing in Box 1. Since you deducted your income in a prior year and received a refund in a different year the $700 is treated as income in the year received. The income is reported under Miscellaneous Income:Reimbursed deductions from a prior year.
If you did not itemize or did not include the interest on your tax return the amount on 1098 Box 4 does not need to be included in your current tax return."
