The loss is applied in its entirety.

From a taxpayer's viewpoint, one can imagine the deficit of 2007 as a hole (unused tax-free earnings). All the surplus of 2008 that he put into this hole is tax-free. In this case, he has managed to fill the whole hole (i.e. applied the whole loss), so that he doesn't forfeit any tax-free earnings.

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What Does Loss Carryforward Mean?

An accounting technique that applies the current year's net operating losses to future years' profits in order to reduce tax liability. Generally accepted accounting principles (GAAP) specify that loss carryforwards can be used in any one of the seven years following the loss.

Investopedia Says

Investopedia explains Loss Carryforward
For example, if a company experienced a negative net operating income (NOI) in year one but positive NOI in one of the next two to seven years, the company could reduce its tax expense for one of those years by applying the loss experienced in the first year.
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