Tax loss carry over
With a tax loss carry over, the tax authority is notified of all tuition fees, that is the expenses through tax declaration and registers the specified costs at the same time. Once the first revenue is earned and taxes are paid, the carried lost will be deducted against tax. This means for employees, the occurred tuition fees on file will be reimbursed in tax refund. The self-employed, on the other hand, will have the amount deducted from their tax payable.
The first degree
Students pursuing their first degree could claim their education expenses as extraordinary expenses for now. In addition, the extraordinary expenses could only be carried over in the year which the tax is accrued, instead of over later years.
Examples of a first degree:
- Bachelor’s degree without a previous completed occupational education
- Occupational education/apprenticeship
- the first state examination
- change of study without a degree
The second degree
The full amount of tuition fees for a second degree are considered as work-related tax deductions and loss carry over can be applied. When the work-related expenses exceed the income, a loss arises. This loss can be carried over in later years when you earn money. To put it simply second degree courses are all apprenticeships, courses of studies and Co., that are after graduation from a first degree course.
Examples of a second degree:
- Master’s degree
- a second occupational education
- Bachelor’s degree after completing an occupational education (E.g. a degree after an apprenticeship)
- Occupational education after completing a bachelor’s degree
- First degree as a part of service or on-the-job training e.g. officers, professional soldiers, the federal armed forces or in a dual degree program
- A university degree after completing a course of study in a technical college, teacher’s college or an art academy
- doctoral studies
- MBA degree program
- Legal trainee and prospective teacher after the first Staatsexamen
- postgraduate studies in the “Master of Laws” (LL.M degree)
- When you take multiple courses of studies simultaneously: after completing the first course of studies, the second course of studies would count as the second degree
The Federal Finance Court holds the discriminatory treatment of first and second degree unconstitutional. It is significantly more difficult for undergraduate students to claim tax returns on their tuition fees than graduate students. A decision of the Federal Constitutional Court has been long awaited ever since 2014.
Those who would like to benefit from a positive decision of the Federal Constitutional Court should submit a tax declaration and have the loss assessed, as well as whether no gains were generated.
When the loss carryover is approved
When the loss carryover is approved, you will find at the beginning of the tax assessment notice: „The notification is obliged to § 165 Abs. 1 Satz 2 AO tax assessment notice." It should be noted that when the total income is negative, it’ll show a minus sign. If this is not the case, then no loss was incurred in the relevant year and thus a loss carryover is not possible.
It should also be noted that in many cases the cost for a first education is acknowledged as extraordinary expense at first and that’s why it’s found further down in the notification instead of under work-related tax deductions. If the expenses are listed under the extraordinary expenses, you should find a footnote in explanations of the notification, where the procedures regarding the attractability of the expenses as income related expense verwiesen wird.
The provisional nature doesn’t not concern the entire tax bill, but rather one or more individual points. Therefore only these points in the tax bill still remains open to further court rulings.
Tax bills are often issued “temporarily”. Therefore the citizens need to hope for a positive ruling of a pending litigation for the loss carry over by the Federal Constitutional Court, according to the financial administration there’s no special appeal to lodge.
The financial administration communicated through the provisional establishment of income tax of § 165 Abs. 1 Satz 2 Nr. 3 AO within the tax bill, that the taxpayers’ rights regarding the respective points was completely preserved. In that regard, an appeal is not necessary.
It is also correct when the loss assessment notification is issued to 0 € at first.
Until a temporary endorsement regarding the attractability of the expenses as income related expense is make into the notes, With a delivery of judgement through the Federal Constitutional Court, the decision will be changed accordingly.
The background is, that the extraordinary expenses establish no lost that’s able to be carried over and these expense comes to 0 € at first. When the expenses are accepted as work-related tax deduction, the incurred loss can therefore be carried over and the stated amount will be adjusted accordingly.
When the loss carryover was not approved
In the event the loss carryover was not approved, it is recommended to file an appeal. The responsible authority will subsequently reexamine your tax declaration. If the decision is in your favor, you will receive a rectified tax bill. Should the appeal be rejected, the only legal process left for you is a lawsuit.
If the tax bill happens to be not in your favor (as stated before), you should lodge an appeal against the tax bill anyway. You have a month’s time from the receipt of the tax bill. The appeal should be made in written form along with your signature. In order to help you, we have drafted a ready-made appeal.