(2023)
How do loss deduction, loss carryback and loss carryforward work?
Losses or negative income are primarily offset in the same year against positive income, if available. The offset is first applied within the same type of income and then with other types of income - without any limit (loss offset).
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 up to an amount of 1.000.000 Euro - 2.000.000 Euro for married couples - since 2013 (and in more recent cases to the year before last; see below)
(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 - 2.000.000 Euro for married couples. If the loss amount is still higher, the excess amount is offset up to 60% of the total income in the following year, so that 40% of the profit is always taxable.
Many self-employed individuals and business owners suffered losses in 2020 and 2021 due to the coronavirus crisis. The tax loss carryback was originally limited to 1.000.000 Euro for single individuals and 2.000.000 Euro for married couples.
In 2020 and 2021, the loss carryback was increased to 5.000.000 Euro or 10.000.000 Euro for joint assessment.
The "Third Coronavirus Tax Assistance Act" of 17 March 2021 increased the loss carryback to 10.000.000 Euro or 20.000.000 Euro for the years 2020 and 2021, also for the provisional loss carryback for 2020.
From 1 January 2022, the loss carryback was permanently extended from 1 year to 2 years. The increased loss deduction of 10.000.000 Euro or 20.000.000 Euro for the years 2022 and 2023 remains in place.
This means that the limits will only be reverted to the previous level of 1.000.000 Euro or 2.000.000 Euro for jointly assessed spouses from 2024.
Note: The option for loss carryback has been restricted. From 2022, you can only opt out entirely, not carry back a partial amount. "At the request of the taxpayer, the loss carryback is to be waived in full" (§ 10d para. 1 sentence 6 EStG-new). This means that the option to limit the amount of the loss carryback on request is no longer available.
If negative income cannot be offset by loss adjustment in the year the loss occurs and by loss carryback to the previous year, please always tick the box "Declaration for the determination of the remaining loss carryforward" at the top of page 1 of the main tax form.
An exception applies to losses from certain sub-income types, such as losses from
- private sales transactions (speculative transactions) according to § 23 EStG,
- other income according to § 22 No. 3 EStG,
- commercial animal breeding and husbandry according to § 15 para. 4 sentences 1 and 2 EStG,
- commercial futures transactions according to § 15 para. 4 sentences 3 to 5 EStG,
- tax deferral models you joined as an investor after 10 November 2005 (§ 15b EStG),
Losses from these sub-income types may not be offset against other types of income, but only against profits of the same sub-income type. Special offsetting rules apply here:
- In the year the loss occurs, a loss offset is only possible within the same sub-income type, i.e. losses from private sales transactions can only be offset against similar profits (only horizontal loss offset).
- If a loss remains after the loss offset, it can be carried back to the previous year or forward to the following year and also only offset against similar profits (only horizontal loss deduction). The same rules and deduction restrictions as described above apply to each individual sub-income type.
