If you only paid $5000 toward your improvement so far, then your acquisition debt on the new loan is $205,000, or 68.3% of the balance, so 68.3% of the interest is deductible. Turbotax should help you figure this out, but I've seen reports that it is not handled well, so you might just enter the 1098 and report 68.3% of the interest and say that it was all used to buy or build. The IRS only gets the final interest number.
For next year, Turbotax should again help with the calculation and it will be easier if you don't have multiple lenders. I think Turbotax uses a first month/last month averaging method, although this is not quite how it is described in the IRS publications.
https://www.irs.gov/pub/irs-pdf/p936.pdf
Per publication 936, you need to determine your average acquisition debt for the year by averaging the acquisition debt for each month. So you will need to save your monthly mortgage statements. As you spend money on the improvements (your draws), your acquisition debt will go up. Once you have your average acquisition debt for the year and the total interest you paid for the year, there is a formula to determine the percentage of your interest payments that are deductible as acquisition debt.
Also note, your debt only counts as acquisition debt if the work is completed within 24 months of taking out the loan.
