Watch this video from This Old House to learn how to repair a smokey exhaust flue.
Steps:
1. Check the draw of water-heater exhaust pipe with a long fireplace match.
2. From roof, inspect the top of the chimney.
3. Use silicone caulk to cement a stainless-steel cap to top of fireplace flue.
4. Add flue tile extension to top of water heater flue; secure the tile with silicone caulk.
5. Drop weighted string down the water heater flue to helper in basement.
6. Tie string to corrugated chimney liner and have helper pull string as you feed the liner down the flue from above.
7. Seal the upper end of the liner to the top of the water-heater flue.
8. From the basement, connect corrugated liner to the exhaust pipe leading to water heater.
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