I had checked with the lender. They still consider it owner occupied as I am living there and occupy majority of my principal residence. this is not relevant for income tax purposes.
workaround
on schedule E enter the $20K as mortgage interest - don't bother entering or linking the 1098 info
on the schedule for mortgage interest
other than below answer the questions
select primary home
Form 1098
for mortgage interest enter $40K
check the box that the amount entered differs from the 1098
enter mortgage origination date
do not enter outstanding principal balance
for explanation of difference enter something like $20K allocated to rental portion of property.
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on home interest worksheet you'll need to enter $1,000,000 as the outstanding principal balance
based on this you should see $30K on schedule A for deductible mortgage interest
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there's no good way to handle your situation. I could find no means to have Turbotax prorate the principal balance as well as the interest.
