@jimmyv2 not being very sure that fully understand the situation fully -- this is what I think is the situation:
(a) You a US person ( citizen / GreenCard ) is currently in Sweden as a resident therein, earning active income in Sweden. You also have passive income from US sources
(b) You pay Swedish taxes on your wages and also on your passive incomes .
(c) Thus for US tax purposes you have to "re-source" the passive US sourced incomes to be able to use foreign tax credit. This means that you recognize the US sourced passive incomes on US return and then on form 1116 , also include same passive income as "resourced by treaty" ONLY for recognition of foreign tax paid to Sweden on the same income.
Assuming that the above describes the situation generally, the question is what happens when the passive income is Capital loss ( e.g. stocks held for > 1 yr and sold at a loss )?
In such a case 1. for US purposes , the loss is recognized and the allowed portion is used to reduce the AGI and hence the total tax on world income; 2. Similarly for Swedish purposes ( I am going on a limb here ) probably there is a loss recognition and ultimately affecting the taxable income and hence lower tax burden ( foreign tax ).
Thus , IMHO, the fact you have lower foreign tax burden,, takes care of the situation -- form 1116 has no mechanism to handle negative tax burden.
Does this make sense ? Is there more I( can do for you ?
