Reduce your energy costs and get a tax credit

With winter fast approaching, don’t wait to make home improvements that will result in a more energy-efficient house. You’ll save money and help the environment. But if that’s not enough of an incentive, Uncle Sam is giving you another reason as well: tax credits.

Make simple improvements such as beefing up your home’s insulation, replacing your water heater or furnace, or installing high-efficiency heating and cooling equipment between now and Dec. 31, 2007, and you are eligible for a federal tax credit of up to $500. All improvements made between Jan. 1, 2006, and Dec. 31, 2007, count toward the credit.

Building a new home? You could be eligible for a $2,000 tax credit on an energy-efficient house that achieves 50% energy savings for heating and cooling according to the 2004 International Energy Conservation Code.

Here are a few home improvements that will result in the credit:

* Storm windows. 10% of cost, up to $200 for all windows, skylights and storm windows * Insulation. 10% of cost, up to $500 * Exterior doors. 10% of cost, up to $500 * Storm doors. 10% of cost, up to $500 * Metal roofs. 10% of cost, up to $500 * Gas, oil or propane water heater. $300

* Electric heat pump water heater. $300

To ensure eligibility, make sure the improvements comply with the standards set by the Energy Policy Act of 2005. For complete details, visit www.energystar.gov. End of Story

Marshall Loeb, former editor of Fortune, Money, and The Columbia Journalism Review, writes “Your Dollars” exclusively for MarketWatch.