@rroop1 wrote:
Thank you so much for the very thoughtful reply. I agree there are a lot of questions that arise from all of this. In my particular case the detached building is a shop that will cost 200-300k with value of original property at about 1 million. It would be used to store RV’s and a boat. So I would say it improves the value considerably but not used for a residential living space.
I think you are thinking too narrowly. "Residential living" doesn't necessarily mean your bedroom and kitchen only. A garage is part of your home, whether it is attached or detached, and it counts for the mortgage interest deduction, even though you don't "live" in the garage. Parking your car or boat in the garage does not disqualify you from claiming the mortgage interest deduction. However, declaring the garage as a "home office" (business use of the home -- such as you are a self-employed auto mechanic, or you have woodworking tools and make projects to sell on Etsy) is what makes it not used for residential living.
If this workshop and garage for boats and RVs is still used for personal use (the RV you take family trips with, etc.) then I think it would still qualify as part of your residence. (If a detached garage for your daily driver counts, why not a larger detached structure for larger vehicles as long as they are personal use and not business use.)
The other factors still need to be considered, though.
