Loss carryback

A loss carryback is the offsetting of a current year tax loss against the reported taxable profit of previous years. Doing so results in a refund of taxes paid in prior years. A loss carryback is superior to a loss carryforward, since a carryback results in an immediate cash inflow, while a carryforward may not result in any tax reductions for years to come.

The tax laws only allow a loss carryback to be used for the past three years; any remaining tax loss must be carried forward and used in future periods.