A more thorough explanation:

Carryover is a way of using deductions and credits from one year to reduce the tax liability in later years. This is done when the deductions and credits cannot be fully used in the year they were earned. For example, if a business has a net operating loss in one year, it can carry over that loss to reduce its tax liability in future years.

Other items that can be carried over include charitable contributions and investment tax credits. Carryover can also be used in other contexts, such as carrying over accrued vacation time or credits earned towards a degree.

Another concept related to carryover is carryover basis. This is used when an asset is sold or exchanged, and the previous owner's original investment amount (plus any improvements) is transferred to the new owner for the purpose of calculating gain or loss.

For example, if someone buys a house for $200,000 and makes $50,000 worth of improvements, their total investment in the house is $250,000. If they sell the house for $300,000, their gain would be $50,000 (the selling price minus their investment). However, if they had inherited the house and the carryover basis was used, their investment would be the previous owner's $200,000 plus the $50,000 in improvements, for a total of $250,000. If they sold the house for $300,000, their gain would only be $50,000 (the selling price minus their investment).