The Italian has been on loan from Bradford for the last couple of months and had hoped to sign a permanent deal with Boro, with a view to finishing his career here.
Carbone has now returned to Bradford where he is still under contract. His future is still unclear and has hinted that he may return to Italy if he can't find a new club. He will not be available for Boro's final game of the season with Leeds on Saturday.
The major stumbling block over the deal is believed to be Carbone's wage demands, to stay at Boro he would have to take a wage-cut to bring him in-line with Boro's new strict wage structure.