Can You Claim a Home Office in a Detached Garage?

Using a detached garage as a home office can be a practical solution for those needing a dedicated workspace, but tax and financial considerations must be carefully evaluated before claiming a home office deduction.

Understanding how expenses such as mortgage interest, property taxes, depreciation, and insurance apply to a detached structure is essential. Additionally, using part of a property for business purposes can influence its overall valuation.

Home Office Deduction Eligibility

To qualify for a home office deduction, the space must meet the IRS’s strict requirements for exclusive and regular business use. It cannot double as storage or serve non-business functions, even occasionally. The IRS has consistently upheld this standard in audits and tax rulings.

The space must also be a principal place of business, a setting for client meetings, or a separate structure used for business. A self-employed graphic designer exclusively working from a detached garage would likely qualify, whereas using it only for occasional administrative tasks could jeopardize the deduction.

Proper documentation is crucial. Taxpayers should maintain records of business activities, photographs showing exclusive use, and a floor plan demonstrating separation from personal areas. Utility bills and other expenses directly related to the garage’s business use should also be kept.

Mortgage Interest and Property Tax Allocation

When claiming a home office deduction for a detached garage, mortgage interest and property taxes must be allocated proportionally. Unlike a home office within the primary residence, a separate structure requires calculations based on its footprint rather than total property size.

To determine the deductible portion, compare the garage’s square footage to the total building space. If a home is 2,000 square feet and the garage is 500 square feet, the garage represents 25% of the total structure. If annual mortgage interest is $12,000, then $3,000 (25%) may be allocated as a business expense. Property taxes follow the same proportional method.

IRS Publication 587 provides guidelines for determining business-use percentages for separate structures. Since land is not deductible, it should be excluded from calculations.

Depreciation for Renovations and Improvements

Upgrading a detached garage for office use often requires renovations such as insulation, electrical work, or climate control. These improvements must be deducted through depreciation rather than expensed in the year they are made. Under IRS guidelines, nonresidential real property, including separate structures used for business, is depreciated over 39 years using the straight-line method. The total cost of improvements is spread evenly over this period.

Some upgrades may qualify for accelerated depreciation under Section 179 or bonus depreciation, allowing for faster write-offs. Section 179 permits businesses to deduct the full cost of qualifying improvements in the year they are placed into service, with a 2024 limit of $1.22 million and a phase-out beginning at $3.05 million in total purchases. Bonus depreciation, which was 80% in 2024, is scheduled to decrease annually. Businesses planning significant renovations should consider these options while available.

Insurance Coverage Considerations

Using a detached garage as a home office can create insurance gaps. Standard homeowners’ policies provide limited coverage for business use, often capping protection at a fraction of the dwelling’s insured value. If the garage contains valuable equipment or specialized installations, a business property endorsement or separate commercial policy may be necessary.

Liability exposure also increases when business activities occur in a detached structure. If clients, employees, or delivery personnel visit the garage, a standard homeowner’s policy may not cover injuries sustained on the premises. Commercial general liability insurance or a business owner’s policy (BOP) can offer broader protection against bodily injury claims, property damage liability, and legal fees. Without this coverage, business owners may be personally responsible for litigation or medical expenses.

Potential Effects on Property Valuation

Converting a detached garage into a home office can affect a property’s market value depending on local real estate trends, zoning laws, and buyer preferences. A finished office space may appeal to remote workers or small business owners, but modifications that reduce storage or parking functionality could limit buyer interest.

Zoning regulations may also influence resale value. Some municipalities restrict the use of accessory structures for business, and non-compliance could lead to fines or complications when selling the property. Permanent alterations—such as removing the overhead door or installing built-in office fixtures—may require additional investment to restore the space to its original function, potentially deterring buyers seeking a traditional garage.