What is a carryback?

A carryback applies current-year losses (or certain credits) to prior-year income, producing refunds. Rules vary by loss type and year of loss (e.g., NOL carrybacks were modified by the CARES Act for specific years).

Where carrybacks apply

• NOLs: Generally carryforward-only post-2017, but specific years (e.g., 2018-2020 under CARES) allowed 5-year carrybacks; some states differ.NOLs:
• Capital losses (C corps): 3-year carryback, 5-year carryforward; individuals cannot carry back capital losses.Capital losses (C corps):
• Credits: Certain business credits (e.g., general business credit) may have limited carryback periods.Credits:

Benefits

• Immediate cash via refunds from profitable prior years.
• Possible rate arbitrage if prior years had higher tax rates.
• May improve liquidity during downturns without selling assets.

Strategies

• Choose carryback vs. waiver: If current/future rates are higher, waiving a carryback might yield better total savings; otherwise, take the fast refund.Choose carryback vs. waiver:
• Align with other deductions: Avoid wasting deductions in a carryback year where income is already fully offset.Align with other deductions:
• State planning: States may disallow or limit carrybacks; model state vs. federal results.State planning:
• Cash-flow timing: Use quick refund forms (e.g., Form 1045/1139 where applicable) to accelerate payment instead of waiting for an amended return.Cash-flow timing:

How to execute

• Verify eligibility (type of loss, tax year) and consider electing out if more favorable.
• Prepare carryback calculations, schedules, and supporting statements.
• File the proper form (or amended returns) within the statutory window.