Yes, you can only offset your income under Section 1341 for the actual amount of the repayment. In your case it would be $25,000.
No, you do not adjust your W-2 for 2023 or any previous year. You report the deduction/adjustment of income on your 2023 return as noted by Mike9241. The link below will walk you through the steps to enter this in your tax return. Keep in mind that if you choose to use the credit instead of the deduction you must use TurboTax Desktop version.
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