I recently bought a house, and have started refinishing the basement and as I do this I realize that there is a problem with the furnace flue pipe and clearances to combustibles. I realize this is not up to code, and needs to be fixed ASAP. Previously the condition was the same as pictured but with wood paneling TOUCHING the flue pipe. It's been like this for 20+ years from what I understand. Inspector didn't mention this issue. I started putting up drywall but have not stopped now realizing I need to address this.
This is an oil furnace, 6" single wall pipe, penetrates an interior wall from furnace room with a thimble, before making a short run in the finished space and then a 90 degree turn stubbing into a masonry chimney.
If I understand correctly, penetrations of interior walls are not allowed, period, even with dura-vent or similar.
I'm going to get a contractor out here soon to deal with this, but I wanted to see if anyone here had any suggestions. Do I need to box this corner out, so that it remains part of the furnace room? If so, how much clearance do I need both to the interior masonry and to the boxed out partition, assuming I use cement board on the back side? Can I just build a soffit around it instead with an access door for inspection? Thanks in advance for any advice.