Home equity loan is still deductible if the loan is used to buy, build, or substantially improve the home with which the loan is secured.

PS will not know the difference and relies on you as the professional to only enter qualified expenses.  As to the amount disallowed, you have probably entries somewhere for the principal so that PS is able to compute a limitation.

I don't use PS and can't speak to the input in PS but my friends who do may step in to give you a more comprehensive response.