You have a mixed use mortgage as defined in Pub 936 consisting of acquisition and non-acquisition debt (equity debt). Principal payments are applied to the non-acquisition portion of your mortgage first while keeping the acquisition portion ($300,000) constant until the non-acquisition debt is paid down. The 75% initial ratio of acquisition to non-acquisition increases with each payment until it becomes 100%.
In the 'Tell us about this loan' box, continue to enter the amount spent to buy and improve the home ($300,000). Turbo Tax compares this value to the yearly ending balance to determine how much of the non-acquisition debt has been paid down.
