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If you did not itemize (take mortgage interest deduction) you would do nothing as it does not need to be reported.
If you did itemize, then it would be reported as Other Income on your return.
To do this:
. It is a refund (or credit) for overpayment(s)
of interest you made in a prior year or years. If you itemized deductions in the
year(s) you paid the interest, you may have to include part or all of the box 4
amount on the “Other income” line of your 2016 Form 1040. No adjustment to
your prior year(s) tax return(s) is necessary. For more information, see Pub. 936
and Itemized Deduction Recoveries in Pub. 525
How does this get reported for rental property? The box 4 on Form 1098 is greyed out. I am not able to enter negative expenses on Sch E and there is no place for miscellaneous income. Do I just reduce the amount reported in Box 1 of the Form 1098?
For rental property this is still miscellaneous income. You can add it to the rent that you received.
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