Taxable interest from foreign bank account

The answer to your question is that Form 8938 is purely a disclosure form; it does not and is not meant to calculate your US income tax on any foreign financial holdings.  Any actual income you received through your foreign account (and any US tax on it) will be input separately when you report your income on Form 1040, Schedule B, Schedule D, etc.  In TurboTax, this will mean entering your foreign income into the Interest & Dividends section interview, for example.  That is where you US tax gets "calculated."  For additional details please keep reading below for much more information on this topic.

With respect as to how to report earnings on your foreign bank account, the answer is that you will do this on a United States tax return just as you would as if the bank were domestic in nature instead of foreign.  It does not matter what is the dollar amount involved, whether it is $1,500 or $15, the reporting process is just the same -- although you do need to convert any foreign currency amounts back into US dollars, simply for tax compliance and reporting.

In other words, whether or not you receive an actual US Form 1099-DIV (for dividends) or Form 1099-INT (for interest) you will simply "pretend" that you did, and proceed to enter your dividends and interest in that manner.  As such, you can can follow the mechanical data-entry instructions for each type of passive income, as described in each of the following links:

https://ttlc.intuit.com/questions/2952456-where-do-i-enter-my-1099-div

https://ttlc.intuit.com/questions/1899701-where-do-i-enter-form-1099-int

If you also paid any foreign taxes on those dividends or interest, you can input that data on the very same 1099-DIV and 1099-INT input screens in TurboTax. There will be boxes provided there, in which you can indicate any foreign taxes paid.

Now then, reporting the income from your foreign financial accounts is one thing.  Reporting the existence of your foreign financial accounts is entirely another.  In other words, there is a "disclosure" requirement for every US taxpayer who holds assets in a non-US account financial account, even if the account or asset generates no taxable income.  This applies to mainland US citizens, territorial residents, and expats, including those who never return to the US, but still maintain their US citizenship.  Essentially, the government wants to know about your non-US assets -- how much and where you keep them.

In fact, there are two separate disclosure forms that may be required; each also has different reporting rules.  One is known as IRS Form 8938, and can be attached to the relevant yearly Form 1040 tax return.  The other is FinCen Form 114, which can only be filed via the internet.  The following Internal Revenue Service webpage describes them in some detail, and provides their dollar value reporting levels:

https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements

 

Form 8938 is included in TurboTax.  FinCen Form 114 is not included in TurboTax, and you would need to access that reporting webpage separately, if your foreign financial assets total over the limit(s).  Note that you can get to the FinCen reporting internet site directly through the above IRS link.

If you are asked about the specific schedule and line where your foreign interest and / or dividends are reported, on Form 8938, you would answer that as follows.  For interest income it will be Form 1040, Schedule B, Line 1.  For dividend income it will be Form 1040, Schedule B, Line 5.

Thank you for asking this important question.

If you have paid taxes on your interest income to both the US and foreign government, you may qualify for a foreign tax  credit.  Besides filing a Form 8938 and Schedule B, to claim this credit, you would need to file a Form 1116.  Here are the steps: 

• Open up your TurboTax account and select Pick up where you left off
• At the right upper corner, in the search box, type in "foreign tax credit" and Enter
• Select Jump to foreign tax credit
• Follow prompts

If you can't claim a credit for the full amount of qualified foreign income taxes you paid or accrued in the year, you're allowed a carryback and/or carryover of the unused foreign income tax, except that no carryback or carryover is allowed for foreign tax on income included under section 951A. You can carry back for one year and then carry forward for 10 years the unused foreign tax. To read more, click here:

https://www.irs.gov/taxtopics/tc856