You Can Save Your Home's Value

Dec. 7, 2007 Special to ABCNEWS.com — -- You can use tax and financing tricks to make the slide in house values far less depressing.

California homeowner Dana Frank is resisting the temptation to sell her three houses near Los Angeles, worth $2 million altogether. Values around L.A. are shrinking, and Frank is haunted by the memory of the state's last housing slump in the early 1990s.

She watched it grind down her Ukrainian immigrant parents and rob them of their prized 3,000-square-foot home in a fancy suburb north of the city. They'd borrowed too much and were missing mortgage payments by the time they sold in 1997 for a price roughly equal to the $550,000 they owed on it--and less than half its 2007 value, Frank points out ruefully. "You have to be able to hang on until prices rise," she says.

The new bear market in housing, says the very man who fathered the bubble, Alan Greenspan, is likely to continue for another year or more. Even if you have no problem making your mortgage payments, watching the value of your home nose-dive is a grim business.

Click here to see what you can do to protect your home's value at our partner site, Forbes.com.

It's grimmer still if you bought in the past year, as 14 million Americans have done, because in that case you probably are, or soon will be, looking at a paper loss. To pour brine in your wounds: Should you realize this loss by selling, you can't use the loss to shelter gains in your stock portfolio. Tax rules treat a loss on your home as a nondeductible personal item.

Nevertheless, a few tax tricks and other financing gambits are available that take the sting out of the bear market. Frank is trying one of them. Some ideas:

If the house has tumbled in value, your property taxes should, too. So get your house reappraised by your municipal assessor. You may even be able to petition, or sue if you must, to get back some taxes you overpaid in past months.

Got a room you use to make a living? Dust off your receipts. You might be able to deduct some depreciation and a pro rata share of utilities and maintenance. The depreciation lowers your cost basis, which can come back to bite you when you sell at a profit. But if the property has lost value, this is not an issue.Many caveats apply, since the Internal Revenue Service closely scrutinizes home-office deductions, warns Mark Nash, a partner at PricewaterhouseCoopers' private company services. If you are an employee, (a) the home office has to be not just permitted by but useful to your employer, and (b) only the amount exceeding 2% of adjusted gross income can be claimed (as "miscellaneous" items). If you are self-