Tax loss carryover

A tax loss carryover can help you secure a tax benefit at the start of your professional career.

What is a “Tax Loss Carry over”?

A degree comes at a high cost. Fortunately, students can claim a lot of their tuition fees in tax returns. Certainly there’s money from the state in return for an education only if taxes were being paid, too. Since most students don’t even pay taxes, because their annual incomes stays below the basic tax-free allowance of 8.652 Euro (2016), the German tax law offers an advantageous solution– the tax loss carry over.

Through a loss carry over the tax authority can be informed of tuition payments (= losses) via tax declaration. The tax authority will notice the specified expenses and the stated losses will be offsetted against tax as soon as the first time tax declaration is filed. This means employees will get tax return for the tuition fees on file. For the self-employed, the respective amount is deducted from the tax payable.

Can all students use a tax loss carry over?

All students completing a second degree (master or bachelor with previous vocational training) can claim their educational and occupational expense as work related tax deductions.

For students completing their first degree, the current finance authority only acknowledge the tuition fees as extraordinary expenses, a loss carry over is therefore not possible (see notes below).

Loss carry over

A tax loss occurs when students report less income than expenses. The tax authority will automatically record this loss as a tax bonus type, which will be redeemed as soon as the taxes are paid.

No loss carry over

If students report more income than expenses and pay taxes on their income, the specified tuition fee can be deducted against tax in the tax declaration and a loss carry over is not necessary. A tax refund immediately takes place.

Notes

The Federal Finance Court ruled in 2015 the discriminatory tax scheme between first-degree-pursuing student and second-degree-pursuing student unconstitutional. Now it is up to the Federal Constitutional Court's final decision that whether in the future people can use a tax loss carry over for their first-degree education too. The chances are very good since both lower courts already ruled in favor of first-degree-pursuing students. Until a final judgement is rendered, tax offices don’t immediately approve loss carry over in the case of bachelor student, but issue the tax assessment notices on a provisional basis. Once the Federal Constitutional Court ruled in favor of first-degree-pursuing students, then the tax bill will be changed accordingly and the tax carry over of bachelor students will be accepted.