The cold blast that's hit much of the nation should remind you about the importance of having excellent insulation, thermal drapes, a good heating system and a roof that doesn't leak.

If you had those thoughts in mind during 2010 and actually made some energy-efficiency improvements to your house, you may be eligible to claim what's known as the "nonbusiness energy property tax credit."

                        Tax Credits vs Tax Deductions

But first, an explanation of the difference between a credit and a deduction.

A tax credit is not issued when you buy a product - as is the case with, say, an instant rebate. You must claim the credit when filing your federal income tax. The credit then increases the tax refund you receive or decreases the amount you must pay in taxes.

In general, a tax credit is more valuable than a tax deduction. A tax credit reduces the tax you pay on a dollar-for-dollar basis.

Tax deductions, on the other hand (giving to a charity, for example), lower your taxable income. Let's say you're in the highest tax bracket (35%), then the income tax you must pay is reduced by 35% of the value of the deduction.

However, a tax credit reduces your federal income tax by 100% of the credit.

                        Eligible Improvements

The most common eligible energy improvements include:

o Exterior windows (including skylights and storm windows)

o Insulation, exterior doors & roofs (including caulking, weather stripping and foam sealants as well as storm doors)

o Central air conditioner

o Heat pump

o Furnace

o Boiler

o Water heater

o Biomass stove (think corn)

o Water heaters

Note: Windows, doors, insulation and roofs must be expected to last a minimum of five years. A two-year warranty is considered adequate proof.

And, the credit applies only to one's principal residence. New construction and rentals do not qualify.

                                Paperwork

You must file IRS Form 5695 with your 1040, as well as receipts and the manufacturer's certification statement.

                                How Much?

For 2010, the credit is 30% of the cost of each qualified energy efficiency improvement with an overall cap of $1,500.

                                More Information

This, like most things that involve the IRS, is complicated. Check these three websites and then consult your tax preparer.

o http://www.irs.gov/  (Internal Revenue Service)

o http://ase.org/  (Alliance To Save Energy Organization)

o http://www.energystar.gov/  (Energy Star)

- Nancy Dunnan