Dear illiquid: Fascinating question! My answer is that your idea will not work. The Code does not give the taxpayer any discretion as to which gains/losses he will offset against a carryforward vs. which ones he will pay tax on. A taxpayer cannot pick and choose in an effort to reach the most desirable result. The Code sections that are involved here [Sections 1(h) and 1222] are very mechanical. They operate under a lock-step formula that reaches a particular result, like it or not. So I understand the rationale of your proposal, but the Code simply does not give you the choice to do what you propose.