Indeed you make the adjustment in the year it is paid back.
If the repayment was $3,000 or less, it is deducted on 2007 Form 1040 Schedules A as a miscellaneous itemized deduction line 22. The total miscellaneous itemized deductions must be more than 2% of your adjusted gross income. . If the repayment was more than $3,000 either deduct the total amount you repaid as a miscellaneous itemized deduction not subject to 2% on line 28 of Schedule A, or you may compute a tax credit for the year of repayment, 2007. The credit is the difference in the tax you paid on the income and the amount you would have paid if the income was not included on your tax return in the prior year.
I hope this helps for claiming the repayment of your income.