I'm not understanding your confusion. Perhaps there's more detail to your situation than I"m aware of. It's also perfectly feasible that "the math" is messing with your head; as the way the IRS has one "do the math" messes with my head quite frequently. 🙂
Lets say you took out a $3M mortgage years ago. Then lets say for 2020 you have $2M outstanding mortgage balance in box 2 of your 1098, and lets say box 1 shows $50,000 of interest paid in 2020.
Then say 5% of your home qualifies as a home office. So 5% of your outstanding balance is $100,000 which gets allocated to the home office. Then 5% of the interest paid in 2020 is $2,500. That $2,500 of interest is fully deductible as a home office expense. Period. That takes care of the SCH C stuff for this. Now erase SCH C from your mind completely.
What's left for SCH A is 1,900,000 outstanding mortgage balance and $$47,500 in interest. On the SCH A you can only actually claim and deduct the interest paid in 2020 on the first $700,000 of the outstanding balance left over after having allocated $100,000 of the amount shown in box 2, to the home office.
$700,000 is 36% of $1,900,000. So only 36% of the remaining interest (47,500) can be claimed/deducted on SCH A. That comes to $17,100 of interest that you can claim on SCH A.
