Practically everyone tries to sell you warranties with your purchase. In some cases, it may seem futile, like your purchase from a sporting goods retailer. In other cases, it’s a given, such as when you purchase a vehicle.
When buying a house, home warranties are an option, but are they really worth it?
Here are your questions about home warranties — from tax deductions to transfers and more — answered.
Home warranties vs. home insurance, explained:
Home warranties are warranties that new homeowners may purchase in addition to homeowners insurance. While homeowners insurance is a requirement, home warranties are optional.
Home warranties are contracts that allow homeowners to receive discounts for the repair and replacement of certain home components. They typically cover issues with major parts of your home, like heating and air conditioning, plumbing, electrical wiring, major appliances, and even swimming pools.
The extent of your home warranty depends on the company you purchase the warranty from and the details of the contract you sign.
The downside: Improper maintenance may make your home warranty ineffective.
While some home warranty companies are legit, others may try to take advantage of buyers by including broad clauses that can deem warranties ineffective. For example, a company may refer to an improper maintenance clause when denying a claim if there’s any chance a homeowner maintained a certain aspect of their home incorrectly.
In many cases, the concept of adequate maintenance may differ and a company may hold a stricter stance to deny more claims.
Are home warranties tax deductible?
Home warranties are not federally tax-deductible, putting them in the same boat as homeowners insurance. However, there are a couple of exceptions.
First, if you have a home office, you may deduct a part of your home warranty payments for it. Second, if the home is a rental property, you may deduct home warranty payments on your taxes to lower your net rental income.
Are home warranties transferable?
Home warranties are often transferable, but check with your home warranty provider and plan details to ensure this is true for you. When home warranties prove to be transferable, you may sell a home in the future with a home warranty as part of the deal for the new homeowner.
The consensus: Home warranties aren’t worth it in most cases.
Being a homeowner can be expensive and complicated. However, in many cases, it’s worth it. Because there are often so many holes in home warranty policies, you may be better off pocketing that money for repairs and replacements as they come.
That being said, homeowners buying a home that comes with a transferable home warranty may find no downside to inheriting the previous homeowner’s warranty contract.
If you decide to purchase a home warranty, make sure you work with a reputable home warranty company. Not all home warranty companies are created equal and some may even be a money pit.
Alternatives to home warranties include a stronger homeowners insurance plan and a high-yield savings account (or other short-term liquid investing solution) to stow away money for those inevitable costs that come with owning a home.