Hi @pk and thank you so much for your quick reply.
Your description of the situation in both point (a) and (b) are definitely correct. I want to give a little more information connected to point (c) just to make sure that your answer is fully applicable.
When I declare the income from my US investments in my US return I use a schedule B to declare my interest and ordinary dividends on the US investments, a schedule D to declare my capital gains and losses (both short term and long term) and a form 8949 to declare Sales and Other Dispositions of Capital Assets.
I then typically take the interest, ordinary dividends and capital gains (both short term and long term) and fill that into my Swedish tax declaration which results in a tax in Sweden on this passive income. Since it is a flat rate tax system in Sweden on investment income I have been able to calculate how much I will need to pay in taxes on the passive income before I get my final tax statement, which I then enter into my US tax declaration on the form 1116 for f) Certain income re-sourced by treaty. There the gross income (1a) that I fill in is the sum of the taxable interest, tax-exempt interest, ordinary dividends, and capital gain that is shown in my 1040 which I assume is what you mean when you wrote that I "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." I then fill in the taxes that I pay in Sweden individually for dividends, interest, and other foreign taxes paid or accrued (for my total of short and long term capital gains) in part II of the form.
I also fill out a form 1116 for d) General category income where I fill in the gross income (1a) is my foreign wages and employer's pension contribution which matches the box for wages, salaries, tips, etc that I have in my 1040. In this form I fill in the taxes that I pay in Sweden on my wages under other foreign taxes paid or accrued in part II of the form.
Now for 2022 instead I have the situation where I have interest, dividends but then a capital loss instead of a capital gain (considering both short term and long term). For my Swedish tax purposes I am going to declare the passive income for the interest, dividends and then the full amount of the capital losses (not taking into account the US annual limit for capital losses). In Sweden the capital loss is first used to cancel out the interest and dividends at a one to one relation - the remaining capital loss is used with a reduction factor to reduce my overall tax burden. The Swedish taxes on my wages are still calculated the same as it would be if I did not have the capital gain or loss so it would seem incorrect to try to realize the reduction of taxes on the form 1116 for d) General category income and, like you said, it does not seem like the form 1116 is meant to handle a negative tax burden.
So I hope you agree that the information that I have added supports your conclusion and that the best way to handle it is to simply remove the form 1116 for f) Certain income re-sourced by treaty for 2022. Do you agree?
