I had two 1098's for '24 due to our loan being sold. We then paid off our mortgage in '24.What do I enter for the Principal Balance as of Jan 1, '25 for the first 1098?

Enter Zero since the loan was not paid off, but rather sold.

If you enter the balance when the loan was sold, the program may add that balance to the balance you report for loan two.

The program may have difficulties with your entry since, if you enter the full balance for both, the program may want to add them together. This could cause the interest to be limited if the perceived balance looks too high. 

I would either enter zero for loan 1 or enter as if there were only one Form 1098 and combine the interest, using the higher of the two balances reported in Box 2.

The IRS gets copies of Form 1098, but Form 1098 is not LISTED on your tax return, only the total interest may be checked.

If you don't feel comfortable entering as one Form, enter zero as the ending balance for the first 1098. 

If after entering, the program wants to limit the interest AND you are under the loan balance limit (375,000 if Married Filing Separately; 750,000 all others) and the total loan was only used to buy, build, or improve the home the loan was taken on, you can adjust the final screen and claim the total interest. 

Several years ago, there were changes made with how home mortgage interest can be eligible for the deduction, but the 1098 did not change to reflect the numbers the software sometimes needs to make an honest assessment. 

IRS Pub 936