Property Taxes, Refinancing, and Your Financial Plans

When the 2013 “fiscal cliff” agreements kicked in, one thing many reporters began discussing immediately was how many people are affected by higher tax rates on their gross income. It’s true that many homeowners are taking home less in their paychecks now because of the end of the “payroll tax holiday”.

In the wake of this some homeowners are looking for any way to cut expenses. Some are doing without their favorite expensive lattes, others seek tax loopholes. One fascinating reader question posed to the staff at CNN Money.com involved trying to lower property taxes by “devaluing” the home.

I own a home in Connecticut. I'm currently paying taxes on rooms that I don't use or need. For instance, I finished a bonus room over my garage and fifth bedroom in my attic with heat and sheetrock. Can I "unconvert" these unnecessary rooms to lower my property taxes?”

That was the question asked on CNN Money’s “Help Desk” blog. The reply? Yes, CNN’s Marc Mewshaw writes, you can. “...but it may not make sense to do so. As Newton Buckner, partner at Hartford, Conn.-based accounting firm Whittlesey & Hadley, points out, the only way to cut your property taxes is by devaluing your property. And if you plan on selling your house at some point, that may not be such a smart move.”

Mershaw is right--but the answer overlooks those who might be interested in refinancing their homes at some point. “Devaluing” the home is also a bad idea for these folks; if you want a cash-out refinance, home equity conversion loan or any other type of loan that requires an appraisal, such a move would definitely cut your borrowing power.

Refinancing a home loan doesn’t always require an appraisal, technically speaking. But the lender may require one anyway depending on the type of transaction, the details of that transaction, etc. It actually makes far more sense to refinance a mortgage to lower interest rates and mortgage payments than to invest time, money, and effort into “devaluing” a property to lower those property taxes. Compare how much you can save over the lifetime of a refinanced loan at a lower interest rate--you may be convinced that a refinance loan is the right move to save money as purse strings tighten due to higher payroll taxes and other issues.

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