Hi Steve, I think it will largely depend on your planning department for your particular area.
I do know that for habitable living space to be included in total sq. footage, it has to meet certain requirements, such as ceiling height, ventilation, windows, etc. And don't forget that additional sq. footage will affect your property taxes.... how would this affect the sale of your home compared to others in its area?
Because I don't know the market in your area, I can't say how valuable basements are to the consumer there, and whether or not it would be a wise investment v. paying down the principal. I'm sure somebody here will be able to address that part of the question.
In the meantime, this previousTrulia thread has many answers regarding the sq. footage issue, with the top one being pretty accurate. Hope this helps: