Deducting Garage Space in 2025: What Qualifies and What Doesn’t

Deducting Garage Space

Inspired by analysis from the Bradford Tax Institute

If you’ve already established that you have a qualifying home office (see our previous article for the requirements), the next logical question is: Can your garage count too?

For business owners working from home in 2025, the home office deduction is more valuable than ever. But many taxpayers overlook one important opportunity: your garage may qualify too.

This comprehensive article explains when garage space can be deducted, how the IRS and tax courts treat attached and detached garages, and what documentation you need to support the deduction.

IRS Rules for the Home Office Deduction

To deduct any part of your home for business use—including a garage—the IRS requires:

1. Exclusive Use: The space must be used only for business, with no personal or mixed-use.

2. Regular Use: It must be a consistent part of your business activities.

3. Principal Place of Business: Either the garage is your main work area or is used for administrative/management functions.

(Source: IRS Publication 587)

Can You Deduct a Garage?

Yes. If your garage meets the exclusive and regular business-use requirements, it qualifies just like any other space. Even unfinished or detached garages may qualify.

Examples of Qualified Business Use:

• Storing inventory or equipment

• Packaging and shipping products

• Workshop or production space

• Housing tools or client files

However, the garage must not contain:

• Bikes, holiday decorations, or personal tools

• Mixed-use storage (business and personal combined)

If only a portion of the garage is used for business, that portion may still be deductible—but only if it is clearly separatedand used exclusively for business.

You may deduct garage space using:

• Simplified method – $5 per square foot, up to 300 sq. ft.

• Regular method – Pro-rata share of actual home expenses (utilities, depreciation, insurance, etc.)

Attached vs. Detached Garages

The IRS applies different rules depending on whether your garage is part of the dwelling:

• Detached garages are not considered part of the dwelling unit. They can still qualify if used regularly and exclusively for business, even if not your principal place of business. However, they are excluded from the $250,000/$500,000 capital gain exclusion under Section 121 when the home is sold.

• Attached garages may qualify under more favorable rules. If they are part of the main dwelling and meet home office criteria, they can qualify for the capital gain exclusion.

Documentation to Support Your Deduction

Strong documentation is essential in case of an IRS audit. Maintain the following:

• Floor plans with square footage clearly marked

• Photos of the garage set up exclusively for business

• Usage logs or appointment calendars showing regular use

• Receipts for garage-related expenses (utilities, repairs, improvements)

• Diagrams showing any portioned-off space used only for business

For S-corporation owners, additional steps are required:

• Set up an accountable plan for reimbursement

• Keep corporate meeting minutes and written reimbursement policies

• Maintain substantiation for reimbursements

Real-Life Tax Court Cases Supporting Garage Deductions

1. Ronald Culp v. Comm’r (1993)

Deducted 78% of his home, including garage used for tool storage. Court allowed the deduction, emphasizing business utility over comfort.

2. Brian & Marcie Mallin v. Comm’r (2008)

Garage converted into a workshop. IRS overestimated its value; the court allowed a smaller percentage but agreed it was valid business use.

3. Gene Moretti v. Comm’r (1982)

Garage excluded because it wasn’t used exclusively or regularly. Showed importance of documentation and regular usage.

4. Charles Scott & Joseph Morcos

Garages were standalone structures used for business. The courts allowed deductions because they were not considered dwelling units.

5. Brian Uphus v. Comm’r (1994)

Court allowed both garages in daycare business allocation even though IRS objected. Regular and exclusive use outweighed the IRS’s objections.

Sale of Home with Business-Use Garage

If a garage was used for business and the home is sold:

• For detached garages, gain or loss must be allocated separately and may not be excluded under Section 121.

• For attached garages, the business-use portion may still qualify for capital gain exclusion if it meets standard rules.

Example:

If 12% of your property value is a detached garage used exclusively for business, you must report that portion separately. This could result in a taxable gain—or allow a deductible loss—depending on basis and sale price.

S Corporation Owners: Special Considerations

Home office (including garage) deductions do not flow directly to your personal return. Instead:

• Your S corp must reimburse you through an accountable plan.

• If this is not done, you may lose the deduction entirely.

• Keep clear records, board minutes, and written policies to substantiate.

Key Takeaways

• Garages may qualify as deductible business space under IRS rules and court precedent.

• Detached garages offer flexibility but limit capital gains exclusion.

• Proper documentation and exclusive business use are critical.

• S corporation owners must handle garage reimbursements through formal channels.

References

1. Ronald Culp v. Comm’r, T.C. Memo 1993-270

2. Gene Moretti v. Comm’r, T.C. Memo 1982-552

3. IRS Pub. 587, Business Use of Your Home (2020)

4. Proposed Reg. § 1.280A-2(i)(3)

5. Brian & Marcie Mallin v. Comm’r, T.C. Summary Opinion 2008-13

6. IRC § 280A(f)(1)

7. Proposed Reg. § 1.280A-1(c)(1)

8. IRC § 280A(c)(1)

9. IRS Pub. 463 (2020), p. 9

10. Reg. § 1.121-1(e)(1), (e)(4), Example 5

11. Charles Scott v. Comm’r, 84 T.C. 683 (1985)

12. Joseph A. Morcos v. Comm’r, T.C. Summary Opinion 2001-114

13. IRS Pub. 544 (2020), updated Mar. 2021

14. Brian Uphus v. Comm’r, T.C. Memo 1994-71

Still unsure if your garage qualifies?

Let San Diego Precision Tax Service evaluate your situation, handle proper documentation, and ensure full compliance with IRS rules.

Contact us today for expert help maximizing your home office deduction in 2025.