Tax loss carryforwards (TLCF) — accumulated losses that reduce taxable income — are an important and risky corporate asset. We show theoretically how TLCF affect equity risk: If TLCF are low and used with certainty, equity risk decreases in TLCF because TLCF represent a safe cash flow; if TLCF are high, equity risk increases in TLCF because TLCF increase after-tax cash flows in good times but may expire unused or be deferred in bad times. In a calibrated model the latter effect dominates and risk increases in TLCF on average. Empirically, TLCF positively forecast firms’ volatility, beta, and return.