First Tax Return After Graduation: Using Loss Carry-Forward

Your first tax return after graduation is often the moment a loss appears, for example from a start-up in its first year or from a rented flat. Such a loss is not necessarily wasted. German income tax law lets you shift it to other years. This guide explains how loss carry-back and carry-forward work, which deadlines apply in 2026 and which documents you need.

The most important points at a glance

• A loss arises when negative income is not offset by positive income in the same year.
• Under section 10d (1) EStG, the carry-back reaches the two previous assessment years, each up to 1 million euros.
• Carry-forward stays unlimited up to 1 million euros of total income. Above that, a minimum taxation rule under section 10d (2) EStG applies.
• The remaining loss carry-forward is determined separately by the tax office responsible for you.
• For 2025, the deadline without a tax adviser has passed. With a tax adviser you have until the end of February 2027.

What a loss carry-forward actually is

German income tax sorts income into types. A loss arises when the sum of your income in one year is negative, for example because business expenses exceed your receipts. A founder who invests in the first months, pays for rent, software or advice, often shows a loss at first. A rented flat can also run into the red in its early years through mortgage interest and depreciation.

The law allows you to spread such losses. The provision is section 10d EStG. It has two routes: the carry-back into earlier years and the carry-forward into later years. You can also opt out of the carry-back on application if it does not suit you.

Carry-back and carry-forward compared

Both routes can apply, but in a fixed order. First the possible carry-back is applied, then the carry-forward into later years. The deduction takes priority over special expenses and extraordinary burdens.

The exact limit above 1 million euros is set out in the statute itself. If this applies to you, read the wording of section 10d (2) EStG or have a tax adviser check it. For most students and new graduates, the amount is far below this level.

A carry-back usually has an immediate effect, because it reduces the tax of an earlier year and can produce a refund. A carry-forward only helps in the year in which you have a profit or positive income. It is not a payment but an item that reduces later tax. Decide whether you want to use the loss backwards or forwards.

A worked example with assumptions

Assumption: in 2026 you start an online shop. Start-up costs exceed your receipts and produce a loss of 12,000 euros. In 2025 you had no income, so the carry-back has no effect. In 2027 you make a profit of 20,000 euros.

In the example, the 12,000 euro loss reduces the 2027 profit to 8,000 euros. Further deductions follow, such as the employee lump sum of 1,230 euros if it applies to you (section 9a EStG). The actual tax depends on more factors, including the basic allowance of 12,348 euros in 2026 (section 32a EStG).

Which deadlines apply in 2026

The income tax return is generally due by the end of the following year, with a statutory extension under section 149 AO. If the deadline falls on a Saturday, Sunday or public holiday, it moves to the next working day under section 108 AO.

If you missed the deadline for 2025, do not panic, but act. File promptly and clarify any late-filing surcharge with the tax office. A loss carry-forward does not lapse because your return is late.

Typical cases in which a loss arises

• A start-up in its first phase, when costs come before the first income. This includes software, office, advertising and advice.
• Letting, when mortgage interest and depreciation exceed the rent. This mainly concerns buying a property with a loan.
• Side activities with start-up costs, such as self-employed tutoring or online trade with stock.
• High work-related expenses in employment that exceed your income. This is rare but should be checked.

Not every loss automatically ends up in the carry-forward. What matters is that it appears correctly in your return under the right types of income. A loss you do not declare is a loss you give away.

What you need for your first return

For a loss you need a clean income and expense statement or a balance sheet, receipts for expenses and an overview of earlier years. If you want to recover wage tax, you need the wage tax certificate, your tax ID and evidence of work-related expenses. Our guides on retroactive tax returns as a student and on recovering wage tax during studies show the steps.

Check your tax ID and bank details as well. Errors delay processing and with it any possible refund. If you claim a loss, keep the results for each type of income separate so that the tax office can follow them easily.

For founders, one point also applies: tax depends on profit, not turnover. Anyone who underestimates this in the first year is surprised by advance payments. A tax reserve is sensible, even if the loss reduces everything for now.

What to do now

1. Collect all receipts for income, expenses and interest for the year concerned.
2. Sort the income by type and find out where the loss arises.
3. Check whether a carry-back to the two previous years makes sense, and apply for it, or consciously opt out.
4. File within the deadline and ask for the determined carry-forward to be confirmed in writing.

Related guides

• Loss Carryforward in Studies: Tax Return Step by Step
• Part-Time Jobs and Taxes for Students in Germany
• Self-Employed Student: Health Insurance Rules
• Starting Salaries After Graduation: What Really Counts

Sources: Section 10d EStG, loss deduction (as of October 2026) · Section 149 AO, filing deadline (as of October 2026) · Section 108 AO, deadlines (as of October 2026) · Section 9a EStG, employee lump sum (as of October 2026).

Last updated: October 2026. This guide is general information, not individual advice.