"If you received a check for the closing costs, this is an economic benefit to you and is taxable income."
This is equivalent to saying that if you purchased something on sale instead of paying full retail price that the difference in sale price and full retail price should be reported to you on a 1099-Misc. Furthermore, since the gain on your personal residence is, for the most part, exempt from tax, the fact that you can add this extra amount to the basis will make ZERO difference in your taxable income, so, in reality, it served no economic benefit. Also, since the standard deduction has been increased to include what used to be personal exemptions, many people (if not most) no longer itemize even if they paid mortgage interest and property taxes. There is no taxable benefit to having a mortgage for the "average" taxpayer.
The amount reported on 1099-Misc by the mortgage company should not have to be reported as taxable income to most taxpayers because they were probably not able to deduct the interest or property tax to begin with. So, the question has still not been answered. One cannot just ignore the amount and not include it as income on the tax return (because it's been reported to IRS,) but one should also not have to report it has income since it is NOT INCOME. Where can the taxpayer deduct the amount where it actually makes a difference in their taxable income; not on Schedule A because they will probably not have enough to itemize.
