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Head gasket is blown. Look to see if there is oil in the radiator overflow tank (white plastic tank between radiator and battery), or goopy, chocolate milkshake-like sludge in the engine oil.

If there are no visible signs of oil mixing with water, another possibility is the turbocharger. The unit in the XT is water cooled, and if the seals are worn out, it is possible that coolant is leaking in the exhaust housing and exiting the tailpipe as white smoke (actually steam). If this is the case, the turbocharger will require rebuilding.

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Q: 2004 Subaru Forester xt 2.5 blows white smoke?
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