Not anymore. The final regulations changed that rule. Section 1231 gains are now subject to the same rules as other types of capital gains, and they can be deferred on a gross basis prior to the application of Section 1231 losses. As far as which type of gain is deferred "first", capital gains are recognized on a "worst-first basis", meaning that the gain with the highest marginal rate always gets recognized first. Although I believe the OZ program does allow taxpayers to choose on IRS Form 8949 exactly which capital gains are deferred, one would presume that if there is no choice, the rules would apply the same way they do when calculating boot in a Section 1031 exchange; that is, the lowest-rate capital gains are deferred first, and the highest-rate capital gains are recognized first.
