A tax credit, you will find when preparing your income tax return, is much better than a deduction.

Deductions are subtracted from your gross income, thereby reducing your tax obligation. The credit, on the other hand, is a dollar-for-dollar reduction on the actual tax that must be paid.

Under the Energy Tax Act of 1978, in order to encourage energy conservation, two tax credits were authorized for energy-related items installed in your principal residence.

There is a 15 percent tax credit -- up to a maximum of $300 -- for money spent on "qualified energy conservation expenditures." According to the Treasury Department, the following items qualify for this credit:

Caulking or weather stripping of an exterior door or window.

A storm or thermal window or door for the exterior or your house.

A device for modifying flue openings to increase the efficiency of your heating system.

Insulation for ceilings, floors, walls roofs, etc.

A meter that displays the cost of energy usage.

An electrical or mechanical furnace ignition system to replace a gas pilot light.

A furnace replacement burner to achieve a reduction in the amount of fuel consumed.

To be eligible for the tax credit, the money must have been spent after April 19, 1977. Your house must have been substantially completed before that date, and you must be the first person to use the item installed. Furthermore, the item is expected to have a useful life of at least three years.

This 15 percent tax credit is available to condominium and cooperative unit owners, as well as those who live in houses.

More significantly, it is to be noted that if you are a tenant, you are also entitled to take the tax credit for work done on your principal residence, providing the other tests outlined above apply.

In addition to the 15 percent tax credit, there is a 30 percent tax credit for "renewable energy-source expenditures." Under this credit, which is designed to encourage switching from oil and gas to solar, wind or geothermal energy, 30 percent of the first $2,000 of expenditures and 20 percent of the next $8,000 of expenditures, are eligible for the tax credit, to a maximum of $2,200.

To be eligible for this larger credit, the payments must also have been made after April 19, 1977, must be for your principal residence, and the useful life must be at least five years (compared with three years for the insulation credit).

There is a minimum credit of $10, but any unused credit on your 1978 tax return can be carried forward against your 1979 tax obligation.