Unless there are specific local laws that would prevent you from doing what you are describing, like transforming part of your garage into a living space / play room, the following are my answers
This would be an answer to your second question:
If I understood correctly the water heater would end up being in a playroom area and since, as you’ve mentioned, there are no vents in your garage providing necessary combustion air for water heater. I’m assuming that this is not a direct type water heater that uses exterior air for the combustion process – it would have a special type of a double wall vent pipe (not a B-vent) or two pipes attached to it (one for exhaust and one for intake of air from exterior).
Since you’re cutting the garage air volume in half, you need to calculate the remaining space and determine if it will be sufficient for your water heater, all the details are in my post here: -
If, based on your calculations, there’s not enough air volume in that created playroom (or garage, if that’s where the WH ends up) to support clean combustion, you’ll need to provide additional sources of air. This can be from the exterior or from the adjoining house (except for a bedroom). However, suggesting your home as a combustion air source for the water heater is only under the assumption the new garage area will be properly sealed off / separated. Also, the new playroom cannot be used as a sleeping area. This is for two reasons:
you cannot have a not direct vent type gas burning water heater installed in a sleeping area
you cannot have a garage door opening into a sleeping area
Now the question concerning heating and cooling of your playroom area. If it’s not the garage section you can tap into the home’s system, just make sure that your provide intake and return. Otherwise there will be no air circulation and impossible to properly condition this new area.
The only thing is that since you have a water heater in that playroom you cannot install a return vent if it ends up in a sleeping area of your home, it has to be open into some other section; an open hallway, living room, kitchen, etc., just like the combustion air supply.
Let me know if you have more questions, just click “comment” below.