DEFINITION of 'Loss Carryback'

An accounting technique with which a company retroactively applies net operating losses to a preceding year's income in order to reduce tax liabilities present in that previous year.

BREAKING DOWN 'Loss Carryback'

Loss carrybacks are similar to loss carryforwards, except companies apply their net operating losses to preceding rather than subsequent years' incomes. GAAP stipulates that a loss carryback can be applied only to the three years preceding the loss. For instance if a company were to record a net operating loss in year five, the company could apply a loss carryback to any of years two to four.

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