FORTUNE Small Business:

Tax pitfalls of investing in foreign real estate

An S-Corp can invest in foreign real estate if the property is for business - but here are some caveats to consider.

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(FORTUNE Small Buisness) -- Dear FSB: Can an S-Corp invest money into foreign real estate and consider that a business expense?

- Sanjay, San Jose

Dear Sanjay: According to Walter Robinson, from Walter Robinson & Associates, a Chicago firm that provides tax and accounting services to small businesses, a U.S. S-Corp may invest in foreign real estate as long as the property is for business use.

The investment itself, however, cannot be considered a current business expense, though you can claim the expenses generated from operating the property, as well as its depreciation. You should be aware that the rate at which foreign property is depreciated is different from domestic property.

Foreign real estate holdings may also expose you to foreign taxes, so you will need to calculate the foreign tax credit. And you will have to account for changes in the exchange rate between dollars and the foreign currency.

Understanding the taxes and tax credits surrounding these kinds of investments can be complicated, so Robinson strongly suggests that you consult a tax advisor who is familiar with foreign real estate holdings.  To top of page

Have you invested in foreign real estate for business or personal use? Talk back here.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.