Updated October 17, 2026. Quick answer: Box 4 of Form 1098 shows a refund or credit for interest you overpaid in an earlier year, and the form says not to deduct it. If you itemized deductions in the year you paid that interest, part or all of it may have to be included as other income on Schedule 1. No change to the earlier return is necessary.
What box 4 reports
The borrower copy states the first rule in the box 4 entry: “Do not deduct this amount.” “It is a refund (or credit) for overpayment(s) of interest you made in a prior year or years.” The line on the form is labelled “Refund of overpaid interest”.
The lender instruction for the box is short: “Enter the total refund or credit of a prior year(s) overpayment of interest.” It points to the section on reimbursements. For the other boxes, see the Form 1098 boxes guide, and for the form as a whole see the Form 1098 overview.
Do you have to report it as income
The form gives the borrower a conditional rule, not a blanket one: “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 calendar year Schedule 1 (Form 1040).” The word that matters is itemized. The same form notes that you do not go back and amend: “No adjustment to your prior year(s) tax return(s) is necessary.”
| Situation | What the sources say |
|---|---|
| The refund is for interest overpaid in a prior year | “Do not deduct this amount. It is a refund (or credit) for overpayment(s) of interest you made in a prior year or years.” |
| You itemized in the year you paid the interest | “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 calendar year Schedule 1 (Form 1040).” |
| You need to change an earlier return | “No adjustment to your prior year(s) tax return(s) is necessary.” |
| The refund came in the same year you paid the interest | “If you receive a refund of interest in the same tax year you paid it, you must reduce your interest expense by the amount refunded to you.” |
Pub. 936 gives the line and the limit on the amount: “If you receive a refund of interest you deducted in an earlier year, you must generally include the refund in income in the year you receive it.” “However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year.” It names the line: “report it on Schedule 1 (Form 1040), line 8z.” For a refund you did not deduct in an earlier year, you may be in a different position, because the publication ties the inclusion to the earlier deduction.
The lender’s example, with the arithmetic
The lender instructions include an example that shows how the box is filled. The facts: “In the previous year, you received $5,000 of mortgage interest from the payer/borrower and reported that amount on Form 1098 for the previous year.” “In the current year, you determined that interest due on the mortgage for the previous year was $4,500, and the payer/borrower had overpaid $500.”
The arithmetic is $5,000 paid minus $4,500 due, which equals $500 overpaid. The instruction then says what the lender does: “You refunded the $500 overpayment to the payer/borrower in the current year.” “If you received $600 or more of interest on the mortgage from the payer/borrower in the current year, you must report the $500 refund in box 4 of the current year Form 1098.” “No change to the previous year Form 1098 is required.”
For the borrower, that means box 4 appears on the Form 1098 for the year the refund was made, even though the overpayment was from the year before. The credit version works the same way: “If, instead of refunding the $500 overpayment, you credited the payer’s/borrower’s current year mortgage interest payments due, $500 is still shown in box 4, and the interest received from the payer/borrower in the current year shown in box 1 must include the $500 credit.” So with a credit, box 1 on that form is higher by the credited amount, and box 4 carries the same amount. Box 1 is covered on the box 1 page.
When the overpayment and refund are in the same year
The lender instructions carve this case out: “If you reimburse interest in the same year it is overpaid, do not report the overpayment on Form 1098 as interest received during the year or as a reimbursement of overpaid interest.” Their example: “if the borrower paid $5,000 and you reimbursed $500 of that amount in the current year, enter $4,500 in box 1 as interest paid by the borrower. Do not enter the $500 reimbursement in box 4.”
The arithmetic is $5,000 minus $500, which equals $4,500, so in that case the form would show a lower box 1 and nothing in box 4. That matches the borrower side from the table above, where a same year refund reduces the interest expense.
Why it is on the form, and how it fits the return
The IRS puts a warning on the borrower copy about leaving box 4 out: “a negligence penalty or other sanction may be imposed on you if the IRS determines that an underpayment of tax results” and one of the listed causes is “because you didn’t report the refund of interest (box 4)”. For more detail the form says: “For more information, see Pub. 936 and Itemized Deduction Recoveries in Pub. 525.”
This is the same kind of recovery question that arises for a refund of state tax you deducted, covered on the 1099-G box 2 and 3 page. The place where the deduction side is claimed is Schedule A, described on the Schedule A page.
Edition and box numbers
The primary read for this page is Form 1098 (Rev. April 2025), Copy B, with its Instructions for Payer/Borrower, together with the Instructions for Form 1098 (Rev. April 2025) that speak to the lender. irs.gov was serving a newer set of instructions, the December 2026 revision, on 2026-10-17. Those instructions describe how the form is used going forward: “Use the April 2025 revision of Form 1098 and these instructions to file 2026 information with the IRS in early 2027.” In other words, the form itself was still the April 2025 revision on that date, and the form text served that day read the same as the April 2025 text when the two were compared line by line.
Box 4 is box 4 on both revisions of the instructions, and the box 4 text and the example are the same in the April 2025 and December 2026 instructions. Check the tax year printed on the Form 1098 you received, and check whether the corrected box is marked, before relying on any number.
Common mistakes
- Putting the box 4 number on Schedule A as a deduction. The form says “Do not deduct this amount.”
- Amending the earlier year by reflex. The form says “No adjustment to your prior year(s) tax return(s) is necessary.”
- Including the whole amount without checking the earlier return. Pub. 936 says “you need to include it only up to the amount of the deduction that reduced your tax in the earlier year.”
Related: Form 1098 overview, Schedule A (Form 1040), 1099-G boxes 2 and 3, and Form 1040.
Sources
- Form 1098 (Rev. 4-2025) with Instructions for Payer/Borrower: IRS archived PDF (irs.gov)
- Instructions for Form 1098 (Rev. April 2025): IRS archived PDF (irs.gov)
- Instructions for Form 1098 (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1098.pdf
- Publication 936, Home Mortgage Interest Deduction (for 2025 returns): https://www.irs.gov/pub/irs-pdf/p936.pdf
Read from the IRS documents linked above on October 17, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.