(2023)
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 - with no 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 cannot be offset in the year the loss occurs can be carried back to the previous year (and in newer cases also to the year before that; see below) up to an amount of 1.000.000 Euro - 2.000.000 Euro for married couples.
(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 determination 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 - 2.000.000 Euro for married couples. 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 suffered a loss in 2020 and 2021. Under the old regulation, losses could be carried back to the previous year as part of the tax assessment, but "only" up to 1.000.000 Euro for single persons and 2.000.000 Euro for married couples (loss carryback according to § 10d para. 1 EStG).
- For the years 2020 and 2021, the tax loss carryback was increased to a maximum of 5.000.000 Euro or 10.000.000 Euro for joint assessment (§ 10d para. 1 sentence 1 EStG, amended by the "Second Corona Tax Assistance Act" of 29.6.2020).
- With the "Third Corona Tax Assistance Act" of 17.3.2021, the tax loss carryback for the years 2020 and 2021 was increased to 10.000.000 Euro or 20.000.000 Euro. This also applies to the amount limits for the provisional loss carryback for 2020.
From 1.1.2022, the loss carryback will be permanently extended from 1 year to 2 years. In addition, the increased loss deduction of 10.000.000 Euro or 20.000.000 Euro for the years 2022 and 2023 will be maintained (§ 10d para. 1 EStG, amended by the "Fourth Corona Tax Assistance Act" of 19.6.2022).
The change means that the amount limits will not be reverted to the old legal status of 1.000.000 Euro or 2.000.000 Euro for jointly assessed spouses from 2022, but only from 2024.
Previously, you had two options for loss carryback: you could either waive the loss carryback and save the loss for the next year, or you could carry back part of the loss by applying for it.
Since 2022, this option has been restricted. You can now only fully waive the loss carryback to use the loss in later years. The option to carry back part of the loss has been removed. This means you can no longer limit the loss to preserve the basic allowance for later years if you use the loss carryback over two years.
