(2021) How are loss carryforwards and loss carrybacks applied?

Losses or negative income are primarily offset against positive income in the same year, if available. The offset is first applied within the same type of income and then with other types of income - without limit. If income remains negative after the loss offset in the same year, you can choose to offset this amount either in the previous year or in subsequent years (loss deduction according to § 10d EStG).

(1)  Loss carryback to the previous year: Negative income that is not offset in the year the loss occurs can be carried back to the previous year up to an amount of 1.000.000 Euro - for married couples up to 2.000.000 Euro.

(2)  Loss carryforward to the following year: If the negative income is not or not fully offset in the previous year, you will receive a notice of assessment for the "remaining loss carryforward". This amount is then deducted from the total income in the income tax assessment for the following year up to a total amount of 1.000.000 Euro - for married couples 2.000.000 Euro. If the loss amount is still higher, the excess amount will be offset up to 60% of the total income in the following year.

Note: Due to the Corona crisis and the associated restrictions on public life, many self-employed individuals and entrepreneurs will incur a loss for the year 2020 or 2021, which they can then carry back to 2019 or 2020. The tax loss carryback has been improved: Companies should be able to carry back losses from 2020 and 2021 to a greater extent, i.e. offset them against profits from previous years. The permissible loss carryback is doubled to a maximum of 10.000.000 Euro or 20.000.000 Euro for joint assessment (§ 10d para. 1 sentence 1, § 52 para. 18b EStG, amended by the "Third Corona Tax Assistance Act").

This also applies to the provisional loss carryback for 2020 in accordance with § 111 EStG (§ 52 paras. 52 and 53 EStG).