How do loss deduction, loss carryback and loss carryforward work?

Losses or negative income can be offset against positive income for tax purposes – first in the same year (loss offset), then in the previous year (loss carryback) or in subsequent years (loss carryforward). The basis is § 10d EStG.

1. Loss carryback to the previous year

Losses that cannot be fully offset in the year they arise may be carried back to the immediately preceding year. The carryback is limited to the following amounts:

1.000.000 Euro for individual assessment
2.000.000 Euro for joint assessment

Example:

An entrepreneur incurs a loss of 1.500.000 Euro in 2025. In the previous year 2024, he made a profit of 800.000 Euro. The loss is carried back up to the maximum limit of 1.000.000 Euro. Of this, 800.000 Euro is used – the remaining 700.000 Euro can be carried forward.

Note: The special Corona regulations with increased loss carryback (up to 10 or 20 million Euro) only applied for 2020 and 2021.

2. Loss carryforward to the following year

Losses not offset can be carried forward to subsequent years. The following rules apply:

Up to 1.000.000 Euro (or 2.000.000 Euro) fully creditable
Above this: offset only at 70% of total income (from 2024 to 2027; previously 60%)

From 2028, the 60% limit will apply again.

Example:

If 700.000 Euro remain after the loss carryback, they will be offset against the profit in 2026. If the profit in 2026 is 1.000.000 Euro, 700.000 Euro can be credited – subject to the 70% limit.

3. Special features for certain types of income

Some losses may only be offset within their type of income. These include:

Private sales transactions (§ 23 EStG)
Other income (§ 22 No. 3 EStG)
Commercial animal breeding/farming (§ 15 para. 4 sentences 1–2 EStG)
Futures transactions (§ 15 para. 4 sentences 3–5 EStG)
Tax deferral models (§ 15b EStG)

Example:

A loss from a property sale under § 23 EStG can only be offset against gains from other private sales transactions – not against salary income.

4. Special case of capital losses

Losses from capital income cannot be offset against other types of income.
Losses from share sales can only be offset against gains from other share sales – not against interest or dividends.
No loss carryback possible, only loss carryforward.

Conclusion

Losses can be used for tax purposes – by carrying back to the previous year or carrying forward to subsequent years. Pay attention to special rules for capital income and private sales. In case of doubt, tax advice is recommended.