When applying loss carrybacks, does the loss always have to be applied to the third previous year? Can it be applied to the second previous year, or even to the year immediately preceding the loss?
Answer Usually, the way to maximize the usefulness of a loss carryback is to carry it back as far as possible, to the third year prior to the loss year. That year s income is only available for use for the current year’s loss carryback – in the future, it will be ineligible. However, it is not mandatory that a loss be carried back three years. There may be situations, such as in periods of changing tax rates, where it is more advantageous to the company to carry the loss back to the second previous year, or the year immediately preceding the loss. The tax advisor must make this call based on professional judgement.
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