Loss carryforward and loss carryback: How do they work?

Losses or negative income can be claimed for tax purposes to reduce the tax burden. In principle, losses are first offset against positive income in the same year. If losses remain, there are two options: loss carryback and loss carryforward.

(1) Loss carryback to the previous year

Negative income that cannot be fully offset in the year the loss occurs can be carried back to the previous year. The following limits apply:

• Until 2023: Loss carryback up to 1,000,000 Euro for single persons and up to 2,000,000 Euro for joint assessment.
• For 2020 and 2021: Due to the Corona crisis, the loss carryback was increased to a maximum of 10,000,000 Euro or 20,000,000 Euro for joint assessment.
• From 2022: The loss carryback can now be applied over two years permanently. The amount limits of 10,000,000 Euro or 20,000,000 Euro apply until the end of 2023. From 2024, the old limits (1,000,000 Euro or 2,000,000 Euro) apply again.

Important: The loss carryback must be applied for in the tax return. Since 2022, it is no longer possible to carry back only part of the loss. It is only possible to waive the carryback entirely to use the loss in subsequent years.

(2) Loss carryforward to the following year

Losses that could not be offset after the loss carryback or in the year the loss occurred are carried forward to the following year.

• Up to 1,000,000 Euro (for single persons) or 2,000,000 Euro (for joint assessment) the losses are deducted from the total income.
• Exceeding amounts: For higher loss amounts, only 60% of the remaining total income can be deducted.

Current developments:

• 2024 to 2027: The limit for the exceeding loss carryforward will be increased to 70% to improve tax relief.
• From 2028: The old regulation applies again, allowing 60% of the total income to be used for the loss deduction.

Corona-related adjustments:

Due to the economic impact of the Corona crisis, the following relief measures were introduced for 2020 and 2021:

• Increase in loss carryback: The maximum loss carryback was increased to 10,000,000 Euro or 20,000,000 Euro (for joint assessment).
• Permanent extension of the loss carryback to 2 years from 2022.

Conclusion:

Loss carryback allows losses to be used to reduce taxes from the previous year. Loss carryforward enables losses to be claimed in future years. The current regulation offers greater flexibility and higher limits to account for losses in economically difficult times, such as the Corona crisis.