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The shower in my master bath is tiny. When I removed some dry wall to see if I could widen it, I found a large ~10" round vent running through the space(must be the furnace). Now that I have a high efficiency furnace it seems I no longer need such a large vent since only the hot water heater uses it. I think the furnace installers inserted a chimney liner to reduce the draw. If I could get by with a 4" or so vent pipe, I would be able to expand the wall by 5" inches or more (not sure if there are code restrictions on how close framing can get to a gas vent). Another idea is to vent the hot water heater out the exterior of the house, but I"m not sure if this is even possible.

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This is one of those questions that is very difficult to answer properly with the info given. Although it sounds like you may be able to downsize the vent/flue because to the change over to a high efficiency furnace, there are lots of considerations depending on the exact equipment you have. The water heater is a different application as well.

In your particular case, I think it would be wise to bring in a qualified HVAC tech to analyze the situation and give you a safe plan ideal for your needs and location. Never cut corners when fire and poisonous gas hazards can result. Good Luck

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+1- If you have the install manual for your furnace it should say how it needs be vented. With the model number usually you can Google to get a manual. I agree with Shirlock, you should consult an HVAC expert because there are venting issues - techniques you may not know about. –  SteveR Mar 11 '12 at 15:50
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