Loss carryforward (Verlustvortrag)
A Verlustvortrag (loss carryforward) preserves eligible negative income that was not used in the loss year or carried back, then deducts it from qualifying income in later tax years. It reduces the future tax base, not tax euro-for-euro. Germany has separate restrictions for different loss categories, so not every expense or investment loss enters the general carryforward [1].
Why it matters
Income and deductible costs often arrive in different years. A founder may incur business costs before revenue. A person in a qualifying second degree may have employment-related education costs before starting work. The carryforward keeps an eligible tax loss from disappearing merely because the related income arrives later.
The difficult step is not the subtraction. It is deciding whether an amount is deductible, which income category it belongs to, whether it first offsets same-year income, and whether a special loss restriction overrides the general rule.
The general sequence
For German income tax, the simplified sequence is:
- calculate positive and negative income under the rules for each income category;
- apply permitted same-year loss offsets;
- apply the statutory loss carryback unless it is unavailable or validly waived;
- establish any remaining carryforward in a separate Verlustfeststellungsbescheid (loss-determination notice);
- deduct the established balance from qualifying income in later years under the applicable limits [1].
For 2026, § 10d EStG allows the general carryforward to offset aggregate income up to €1 million without the percentage restriction. Above that threshold, up to 70% of the excess can be offset. The unrestricted threshold is €2 million for jointly assessed spouses. Carryback has separate 2026 limits and reaches the two preceding assessment periods [1]. These high thresholds rarely constrain an ordinary household, but the category rules still do.
Worked example
Assume the tax office establishes an €18,000 general loss carryforward at the end of 2026. There is no remaining carryback use. In 2027, the person has €50,000 of qualifying aggregate income before the loss deduction.
€50,000 - €18,000 = €32,000
The carryforward reduces the relevant income base to €32,000 before later deductions in the tax calculation. It does not create an €18,000 refund. The tax effect depends on the marginal rates and the rest of the 2027 assessment.
If only €10,000 of qualifying income were available, €10,000 could be absorbed and the remaining €8,000 would continue forward, assuming no special restriction changes the result.
Three pools that should not be mixed
| Amount described as a “loss” | Typical treatment | Main trap |
|---|---|---|
| General negative income under § 10d | May enter the general carryback or carryforward after permitted offsets | An expense must first qualify within an income category |
| Capital-investment loss under § 20 | Stays within the capital-income system; share-sale losses are restricted to share-sale gains | A broker's Verlusttopf (loss pot) is not the general § 10d carryforward [2] |
| First-degree or initial vocational-training costs outside employment | Generally treated as Sonderausgaben (special expenses), capped at €6,000 per year under 2026 law | Special expenses cannot create the employment-income loss that many students expect [3] |
Education costs can be Werbungskosten (income-related expenses) when the person previously completed an initial vocational qualification or degree, or when the training occurs within an employment relationship. The statutory definition and the link to future taxable work matter [3][4]. “Student costs always create a Verlustvortrag” is therefore false.
What to verify on the notice
The tax office separately determines the remaining carryforward. Keep the loss-determination notice and compare its ending balance with the next year's opening balance. A zero-income tax assessment and a loss-determination notice answer different questions.
Professional tax review is proportionate when losses involve self-employment, partnerships, foreign income, rental activity, capital-loss certificates across brokers, limited tax liability, or education completed outside Germany. Deadlines and procedural finality can decide whether a loss is still claimable even when the underlying expense would have qualified.
This is general education, not tax advice. The figures and rules above describe German law for 2026.
Check yourself
A taxpayer has an established €18,000 general loss carryforward and later earns €50,000 of qualifying aggregate income. Ignoring other deductions and restrictions, what income remains after using the loss, in euros?
What does a €10,000 loss carryforward normally represent?
A broker records a loss from selling shares. Which treatment is generally relevant?
A full-time student pays costs for an initial degree outside an employment relationship and has no prior completed vocational qualification. Which statement is most accurate under 2026 German rules?
Sources
- Bundesministerium der Justiz — Einkommensteuergesetz, § 10d Verlustabzug, https://www.gesetze-im-internet.de/estg/__10d.html (accessed 2026)
- Bundesministerium der Justiz — Einkommensteuergesetz, § 20(6) capital-income loss restrictions, https://www.gesetze-im-internet.de/estg/__20.html (accessed 2026)
- Bundesministerium der Justiz — Einkommensteuergesetz, § 10(1) no. 7 education special expenses, https://www.gesetze-im-internet.de/estg/__10.html (accessed 2026)
- Bundesministerium der Justiz — Einkommensteuergesetz, § 9(6) vocational training and study costs, https://www.gesetze-im-internet.de/estg/__9.html (accessed 2026)