Congratulations! Your home has a finished basement complete with wood or another interior wall paneling. However, it's only suitable in summer and makes an excellent wine cellar the rest of the year. Here's how we tackled these problems and created a beautiful space.

Many finished basements with interior wall paneling are just too cold during the winter. The reason is that the contractor just installed wood paneling without any insulation. Don't despair though. Here's where we can help. After all, we've been there.

Our basement room was like an ice box in the winter. The painted wood paneling was also dreadful too. It was full of unused extra furniture and junk. Here's a photo without the junk (in case you are wondering, this window was going to boxed in to make way for the new front porch).

Our goal was to retake the space and make it very comfortable and pleasant. We had a 24 x 27 feet space to work with and carved out two bedrooms complete with walk in closets and a storage room.

Let's tackle the paneling first. We didn't want to retain the wood paneling. So the question then became whether or not to remove the wood paneling before installing insulation and drywall.

Some contractors told us to rip the wood paneling out, but this did not make sense to us. What you ultimately decide depends on:

• What the wood paneling is nailed to (2 x 4 or fur strip),
• How much space you have to work with, and
• How much insulation and R rating you want to install.

The wood paneling in our basement was nailed to fur strips with no insulation behind them. We could have removed all of the wood paneling, installed insulation and then nailed drywall to the existing wood fur strips. The drawback was that we would have only been able to install R-11 strip panels and not the insulation bats at a higher R 19 value.

Instead of pulling out the wood paneling, we left it in place and framed over it with new 2 x 4s and 2 x 6s. We were able to insulate with R-19 bats on both exterior and interior walls. Yes, we had to move the electrical outlets and switches as well as some duct work, but we think it was worth it.

We then installed 1/2 inch dry wall on the insulated 1 x 6s and primed and painted them. The result after adding new lighting and flooring was a clean look and very comfortable room for year round use. (Note: were still painting around fireplace mantle).

If your wood paneling is nailed to 2 x 4s, considering either blowing insulation behind the wood paneling, then you can either paint over it or drywall over it. On the other hand, if you don't want to blow in the insulation, than rip out the paneling, install the R-19 insulation, drywall, prime and paint.

See our separate article on updating a wood paneled room that does not need to be insulated.