What you're talking about is an offset, which is allowed. You may use any capital loss carry-forwards on your deferred capital gain when it is recognized.
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How can I use my capital loss carryover to pay deferred capital gains tax?
At the end of 2026 when I owe 90% of the capital gains I have deferred from the sale of appreciated assets in 2021, can I pay that cap gains with carryover capital losses, or does it have to be cash? For example, if I have a $100 loss and a $100 gain in 2021, can I invest the $100 gain into an OZ, and then try to preserve my carry over capital loss all the way until 2026 to offset the tax that is due? This could be helpful in terms of avoiding a higher capital gains tax rate in 2026.
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You can use a capital loss that is carried over to 2026 to offset any capital gain that has been deferred under the opportunity zone rules and is recognized in 2026. Note that you would not be "paying that cap gains [sic] with carryover capital losses" but netting your 2026 OZ capital gain with the carried over capital loss. Which would result in a lower tax liability in 2026. Also, I'm not sure what you mean by "preserving" your capital loss carryover-- if you recognize capital gains between now and 2026, those capital gains will use up the capital loss carryover. You can't make an election to not to use your capital loss carryover if there are available capital gains.
If you have capital loss carryovers into a year where you will recognize the deferred capital gain, you will offset that gain with the available carryovers. It is automatic and not subject to election.
As currently written, the deferred capital gain that will be reported in 2026 will likely be netted with other current gains/losses as well as capital loss carryforwards.
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