Mark both the home you converted to a rental and your new home as your primary home. This is correct because the first home was your primary home for the period you were using it as a personal deduction. When it asks Let's see if this is the most recent form for this loan for the old home that is currently a rental, answer No.
Once you enter it this way, TurboTax will calculate your loan limit solely on your outstanding loan of 1.2 million.
