The amount reported on Form 1098 Box 2 is the Outstanding Mortgage Principal as of January 1, 2021. In instances where the taxpayer exceeds the mortgage limit, TurboTax asks for the loan balance as of January 1, 2022 or the date that it was paid off and takes the average of the beginning and ending balances to determine how much mortgage interest is deductible.
The "behind the scenes" work is shown on the Deductible Home Mortgage Interest Worksheet.
