Received a check from my bank for $700.00. They relooked at my mortgage paperwork and realized that they did not adjust the estimated closing costs to the actual closing costs. How do I account for the $700.00 for tax purposes? The letter they sent, stated it would be reported to the IRS.

Most closing costs are typically NOT deductible (except in cases where the property is a rental property). The only closing costs that are deductible on a private home are the points, origination fees (which are considered to be points), and real estate taxes paid.

That being the case, the $700 is probably NOT income.