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What is a Tax Loss Carryback?

Tricia Christensen
Updated May 16, 2024
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A tax loss carryback is similar to the tax loss carryforward. The principle difference is that a year in which a loss is noted is not carried forward to a subsequent year. Instead, the carryback is applied to a previous year when you paid a lot in taxes, and allows you to reduce taxes already paid, which usually results in a refund of some of your taxes paid.

Generally, organizations like the Internal Revenue Service (IRS) will allow you to apply a tax loss carryback up to three tax years prior to posting the loss. The carryforward has a longer time in which it can be applied, usually seven years after the loss is posted. When you decide to save a posted loss for a specific year, or your loss in the present year well exceeds your tax payments, it may be helpful to look at the three previous years to see which one would best benefit from claiming a tax loss carryback.

Under these circumstances, you will have to refile your taxes for the carryback year, and request a refund accordingly, if you have filed your taxes on time in the past. Other times, a loss in a single year may prompt a carryback for people who have failed to file in one or all of the three previous years. This can mitigate some taxes owed and may reduce late fee payments based on percentage of taxes owed, since total tax amount will be lower.

Most often, though, people apply a tax loss carryback when a business underperforms or when individuals have a year in which investments or property lose significant value. In any of the three previous years, they may have paid much more in taxes due to profits from investments, or increase in values of things like their homes. For businesses that have had terrifically profitable years, an extremely bad business year might prompt an attempt to recoup some of the taxes paid in profitable years through this type of carryback.

The option to refile taxes is usually available for three years, and you don’t need a tax loss carryback in order to refile. Sometimes people notice they have forgotten to take certain deductions they could have, or have failed to account for certain losses in a given year. The IRS, as stated, will allow you up to three years to amend your taxes. Even if you’re not using the tax loss carryback as a means of regaining some of your taxes paid, you may want to amend your return if you realize you have either underpaid or overpaid taxes in a previous year. The IRS website has specific instructions and forms on filing an amended return, and on how to carry back taxes from this year to get a refund of taxes paid in previous years.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Tricia Christensen
By Tricia Christensen , Writer
With a Literature degree from Sonoma State University and years of experience as a SmartCapitalMind contributor, Tricia Christensen is based in Northern California and brings a wealth of knowledge and passion to her writing. Her wide-ranging interests include reading, writing, medicine, art, film, history, politics, ethics, and religion, all of which she incorporates into her informative articles. Tricia is currently working on her first novel.

Discussion Comments

By Telsyst — On Feb 16, 2014

Many bankrupt companies choose to place restrictions on trading in common stock and other securities to preserve their net operating losses for use in future tax years.

Specifically, an investor must declare its status as a substantial equity holder, that is someone holding more than a set percentage of the company's stock.

Potential new investors and those looking to buy an amount of securities that would make them substantial equity holders must first get the company's permission. Any purchases or trades made without approval are considered null and void.

Tricia Christensen

Tricia Christensen


With a Literature degree from Sonoma State University and years of experience as a SmartCapitalMind contributor, Tricia...
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