With a loss carry-forward (“Verlustvortrag”), you can carry forward costs you had in one tax year to the next and claim these costs for tax purposes. Here we explain what you need to consider.
Please note that it is currently not possible to enter the loss carryforward in our app. Our teams are already working on this. However, the actual development effort is difficult to estimate.
By the way: Loss carry-forwards can also result from special types of income such as capital gains or private sales transactions. In this case, the losses can only be offset against the same type of income.
In this article, we will only deal with the general loss carry-forward from high income-related expenses that can be offset against positive income without restriction.
Contents:
- Loss carry-forward: this is how it works
- Example: Loss carry-forward explained
- Losses carried forward for students
- Determining losses retroactively
- What is a loss carry-back?
- Loss carry-forwards when submitting several tax returns
Loss carry-forward: this is how it works
You make losses if your annual income-related expenses exceed your income or if you have no taxable income at all. You can claim these costs in the coming year via a loss carry-forward.
If the tax office determines a loss carry-forward, you will receive a notice ("Bescheid über die gesonderte Feststellung des verbleibenden Verlustvortrags"). You can then declare the loss determined in this notice in your tax return in the following year and thus reduce your tax burden.
This means that a loss carry-forward is not being paid out by the tax office, but it will be taken into account in your tax return in the next year. To put it simply, the tax office remembers the amount of the loss carried forward and deducts it from your income when you next file your tax return. By this, your taxable income is reduced and you can expect a higher tax refund - provided that you paid income tax that year.
Example: Loss carry-forward explained
Tina had no income in 2020, but incurred income-related expenses of €1,500. She carries these expenses over to the next year as a loss and therefore receives a notice from the tax office about the remaining loss carry-forward of €1,500.
In 2021, Tina has more income than expenses. The loss of €1,500 from the previous year is now deducted from her income. This reduces her taxable income in 2021 and she has to pay less income tax.
2020 | 2021 | |
Income | 0 | 5,000 |
Expenses | 1,500 | 1,000 |
Income minus expenses | - 1,500 | 4,000 |
Loss carry-forward | -1,500 | |
Taxable income | 0 | 2,500 |
If Tina could not take the loss into account in 2021 because, for example, she again had more expenses than income, then a loss would again be determined for 2021 and carried forward to 2022.
Losses carried forward for students
Students often have higher expenses than income during their studies and thus make a loss. With a loss carryforward, you can claim these costs later when you start your career. Thanks to these losses, you reduce your taxable income. Offsetting lowers the tax rate, which means that less tax is due, i.e. the tax burden is reduced. This, in turn, can positively impact the outcome of your tax return.
However, a distinction must be made between initial and secondary education. This is because expenses for first-time studies are not considered income-related expenses, but rather special expenses that cannot be claimed as losses. Special expenses therefore only have an effect on taxes in the same year in which they were incurred and only if taxable income existed.
This is why normally only students in secondary education can benefit from a loss - because only then can the expenses be recognised as income-related expenses.
We explain the difference between initial and secondary education in more detail in this article.
Determining losses retroactively
Generally, you can apply for a loss carryforward retroactively for up to four years as part of your income tax return.
However, if you have not yet submitted a tax return for the tax year in question and therefore have not yet received a tax assessment notice, you can even have a loss determined retrospectively for up to seven years.
Please note that you cannot have a loss determined separately with Taxfix, but only with your tax return, i.e. retroactively only for the last four years. If you want to apply for a loss carry-forward for previous years, you can do so via ELSTER, for example.
What is a loss carry-back?
In addition to the loss carry-forward, there is also a so-called loss carry-back (Verlustrücktrag).
The loss carry-back corresponds to the loss carry-forward, but the loss is offset against the previous year and the tax burden is recalculated retroactively. As of 2022, the losses can be offset against the profits of the two preceding years. This can lead to a tax refund.
A loss carry-back is rather rare. If your tax office determines such a carry-back in your tax statement, you have the option of applying for a loss carry-forward instead, if this seems more favourable to you. This is possible within the objection period.