I'm not quite sure what that TurboTax statement means, but the IRS says you can take the full interest deduction, including what was limited out.
Line 14—Excess home mortgage interest.
If you are claiming the standard deduction,
- enter all the home mortgage interest paid for loans used to buy, build, or substantially improve the home in which you conducted business in column (b) of line 14.
- Do not include mortgage interest on a loan that did not benefit your home (for example, a home equity loan used to pay off credit card bills, to buy a car, or to pay tuition costs).
If you are itemizing deductions on Schedule A and
- the amount you figured in Step 1 under Mortgage interest reported on line 6, earlier, was less than the full amount of interest you paid because of the limits on deducting home mortgage interest as a personal expense,
- include the excess attributable to the loans used to buy, build, or substantially improve the home in which you conducted business in column (b) of line 14.
Example.
If you paid $15,000 of home mortgage interest on loans used to buy, build, or substantially improve the home in which you conducted business but would only be able to deduct $12,000 on Schedule A because of the limits that apply to deducting home mortgage interest as a personal expense, include $3,000 ($15,000 - $12,000 = $3,000) in column (b) of line 14.
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