The answer to your question is that your foreign bank interest is only reportable on your Form 1040 Schedule B, as interest. It should not be entered in the same place on your tax return, or in the TurboTax software, as the same thing as your foreign wage income. It is not subject to the same potential exclusion from taxes as are foreign wages (through the application of Form 2555 and the foreign earned income exclusion.) In other words, your foreign bank interest is taxable wherever you live; it doesn't matter if you are a US expat living and working exclusively overseas, or if you are back at "home" in the United States, as interest is always taxable as interest.
In fact, you hit upon something very revealing in the wording of your question. Since interest income is classified as "passive" income, it cannot be grouped together with "earned" income, for purposes of the Foreign Earned Income Exclusion (or with anything else). Interest, dividend, royalty, and investment income are all in a different category ("passive") than are wages and self-employment (which is considered "earned") income.
If you have further
questions, encounter any difficulties, or just want to speak with a live tax
expert who can walk you through your TurboTax entries (including the ability to
screen-share with your computer), please feel free to contact us. We
would be happy to help you (and as a TurboTax Deluxe customer, the call is free to
you). Here is a link where you can create a support ticket and reach us:
https://support.turbotax.intuit.com/contact/
Thank you for asking about this.
