Oil furnace replacement costs $2,500 to $6,000 on average for a like-for-like swap, according to HomeGuide, while Fixr reports $6,700 to $10,000. Switching to gas, by contrast, typically costs $6,000 to $20,000, and a heat pump is the other main option. With residential heating oil at $6.23 a gallon in late October 2026, oil heat now costs about $52 to $56 per million BTU, roughly three times what gas costs, so many homeowners use a replacement as the moment to switch.
Below, we compare the three paths, staying with oil, converting to gas or moving to a heat pump, with installed costs, running costs and the extra work each one needs. Information checked on November 4, 2026.
Oil furnace replacement: your three options
| Option | Typical installed cost | Running cost per million BTU of heat |
|---|---|---|
| New oil furnace (80%–87% AFUE) | $2,500–$6,000 (HomeGuide); $6,700–$10,000 (Fixr) | About $52–$56 |
| Convert to natural gas | $6,000–$12,000 with an existing gas line; $12,000–$20,000 with a new line | About $14–$16 (95% AFUE) |
| Heat pump (7.5 HSPF2 rating) | See our heat pump cost guide | About $24 on average; about $30 at 5°F for a cold-climate model |
Option 1: oil furnace replacement with a new oil unit
Staying with oil is the cheapest upfront choice. HomeGuide puts an oil furnace replacement at $2,500 to $6,000, or $4,200 to $8,800 if the oil tank also needs replacing. Standard models are 80% to 87% efficient, while high-efficiency condensing oil furnaces reach 90% to 97% AFUE and cost $3,000 to $10,000 for the unit.
However, operating costs are the problem. HomeGuide says oil furnaces cost 2.5 times more to run than gas systems. Moreover, EIA expects heating oil households, mostly in the Northeast, to spend 21% more this winter than last, after oil prices rose $2.64 a gallon from a year earlier.
Option 2: convert from oil to natural gas
If a gas main runs past your house, conversion usually pays off. For example, HomeGuide says oil-to-gas conversion costs $6,000 to $12,000 with an existing gas line and $12,000 to $20,000 with a new one. In addition, it says natural gas can cut annual heating costs by 60% or more compared with oil.
| Conversion item | Average cost |
|---|---|
| New gas furnace or boiler | $3,500–$12,000 |
| Gas line installation | $500–$3,000+ |
| Chimney liner, if needed | $1,500–$4,000+ |
| Oil tank removal | $400–$3,400 |
| Permits and inspections | $50–$300+ |
Keep in mind that most oil furnaces can’t simply be converted to burn gas, so HomeGuide recommends replacing the equipment. Also, the whole process takes 2 to 6 weeks or more, even though installation itself takes only 1 to 3 days.
Option 3: switch to a heat pump
A heat pump replaces the oil furnace and adds central cooling at the same time. At the August 2026 U.S. average power price, a heat pump rated at the federal minimum of 7.5 HSPF2 delivers heat for about $24 per million BTU, under half the cost of oil. Even at 5°F, a cold-climate model certified by ENERGY STAR must reach a coefficient of performance of at least 1.75, which works out to about $30 per million BTU.
Electricity rates vary widely by state, though, so check your own utility rate. In addition, HomeGuide notes that a hybrid system pairing a heat pump with a furnace is the most energy-efficient choice. For prices, see our heat pump cost guide and our guide to cold climate heat pumps.
Oil furnace replacement example: one winter of heat
Suppose, for instance, that a home needs 60 million BTU of heat over a winter. At the prices above, an 85% oil furnace would cost about $3,180, a 95% gas furnace about $980 at Northeast gas prices and a 7.5 HSPF2 heat pump about $1,450 at the U.S. average electricity rate. Of course, your own numbers depend on your house, climate and local rates.
Rebates and tax credits in 2026
- Federal tax credit: ended. The IRS says the Energy Efficient Home Improvement Credit covers only improvements made through December 31, 2025.
- HEEHR rebates (formerly HEAR): since May 29, 2026, they no longer pay to replace an oil furnace with a heat pump, because DOE removed fuel switching. However, HOMES whole-home rebates and some utility programs may still help, so see our heat pump rebates guide.
- Utility programs: some gas utilities also help pay for the street connection when you convert, HomeGuide says. Similarly, check the ENERGY STAR rebate finder.
Which option is right for you?
- Stay with oil if no gas line is available, your budget is tight and the house isn’t ready for a heat pump.
- Convert to gas, on the other hand, if a gas main is close and you plan to stay at least 5 to 7 years, the horizon HomeGuide uses.
- Choose a heat pump instead if you also want central air, gas isn’t available or rebates cut the upfront price.
For more on furnace prices, see our furnace replacement cost guide and what size furnace you need.
Related guides: See also our guide on cracked heat exchangers.
Oil furnace replacement FAQ
How long does an oil furnace last?
HomeGuide says oil furnaces last 15 to 25 years. However, it warns that efficiency can drop to 60% to 70% after 15 to 20 years without annual maintenance.
Do I have to remove my oil tank after switching?
Not always legally, but HomeGuide still recommends it to free up space and avoid liability. Removal costs $400 to $3,400, depending on the tank’s location and condition.
Can I convert my oil furnace to burn gas?
Usually not. In fact, HomeGuide says most oil furnaces can’t be converted, so professionals recommend replacing the equipment instead.
Sources and review
Sources: HomeGuide, new oil furnace cost (February 5, 2026); HomeGuide, oil-to-gas conversion cost (December 30, 2025); Fixr, furnace replacement cost (January 28, 2026); EIA, Heating Oil and Propane Update (October 28, 2026); EIA, Winter Fuels Outlook 2026–27 (October 6, 2026); EIA, Electric Power Monthly, Table 5.6.A (August 2026 data, preliminary); EIA, British thermal units; ENERGY STAR, central AC and heat pump specification, version 6.2; IRS, Energy Efficient Home Improvement Credit; DOE Program Notice 26-2 (HEEHR) (effective May 29, 2026); ENERGY STAR rebate finder. All checked on November 4, 2026.
Written by: HVAC Switch. Last updated: November 4, 2026. Read our editorial policy to learn how we research prices, or contact us if you spot an error.