My opinion is that Bank of America should've issued a 1099-C to show the 3% as cancellation of debt. You report the amount as taxable income on your return, then take the Qualified Principal Residential Indebtedness Exclusion on Form 982 to reduce the basis of the home and avoid paying the tax on it.
Since they issued a 1099-MISC though, I agree that the easiest way is to report a net profit of zero on Schedule C and to not worry about it unless the IRS sends a letter.
There are two aspects to this program though that are being confused. The program name is the Bank of America Community Homeownership Commitment. There is a (1) Down Payment Grant Program, and (2) Home Grant Program.
The down payment grant program is what the original person is asking about. This is the 3% "grant". Their advertising materials indicate that it must be used for a down payment. Then the Home Grant Program is a separate $7,500 lender credit that is used towards closing costs and title insurance. It sounds like they are not issuing any 1099's for the $7500.
