Abstract: A space heater with a heat recovery system in which the exhaust gases from the hot air furnace are passed through a heat exchanger in which a set of water heating coils is disposed. The set of coils is connected to a hot water holding tank which is in turn connected to a bank of heat exchanger coils in the heated air outlet of the furnace. A damper is provided in the exhaust pipe of the furnace and a pipe connects the exhaust pipe on the anterior side of the damper with the heat exchanger, and a pipe connects the chamber with the exhaust pipe on the posterior side of the damper. A pump is provided for circulating the water between the first set of coils and the holding tank, and a fan forces the air form the exhaust pipe through the chamber in the heat exchanger. The pump and fan are controlled by a switch responsive to the operation of the furnace. The holding tank may be used to heat water supplied to a hot water heater of a hot water supply system.