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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Most stock quote data provided by BATS. Market indices 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.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.