Can a tankless water heater be installed inside a bedroom closet ? Well its a small closet but you cant put any clothes in it. SAFETY ISSUES CORRECT ? 
If the tankless water heater is getting its combustible air from the outside, which they usually do. If it meets all of the clearance requirements which should be on the label of the water heater than the answer is yes. I have installed many tankless water heater’s in closets and they always pass inspection.
As a sidenote I have contacted Rheem about this exact question and Rheem says installation in a closet is perfectly acceptable.
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There is a make up air hose that is disconnected I think , maybe getting the air from the closet space ?
It is likely getting combustible air from one of the two pipes coming out of the top of the unit. Make up air will not be a requirement for a tankless unit like this one.
They had 2 tankless water heater the other was pulling air from a garage, is this allowed. 
It is if the garage meets the air volume/btu requirements for the water heater. Now your getting into an area where a licensed contractor needs to perform some calculations and it’s way outside of our SOP.
By the way that’s just a weird way to bring combustible air into a tankless. Manufactures almost always recommend bringing in combustible air from the outside.
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It’s hard to tell from the picture, but what kind of vent pipe is attached to the top of the unit? Is it metal flex and metal tape? I don’t think metal flex is a proper material for a flue pipe.
What is the efficiency of that unit?
Hopefully there is no leaking Acetylene nor Ammonia or other lighter that air and flammable gases in that garage.
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No it’s not. The open duct in your photo is definitely not allowed at an interior wall or ceiling of an attached garage. Also what Larry said.
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Especially for those millions of water heaters that are already installed in garages. I see many water heaters installed in garages that are using the garage space as their combustible air. A garage may meet the requirements for combustible air if the volume of air is adequate.
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Good points. I new I was slow last evening. Too much activity in the house. Thanks, Martin! 
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It has now compromised the fire barrier between the garage and living space.
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Yes, Daniel, with more compromising here:
I have no idea why these pipes are in the garage as they are not needed for combustible air. Just recommend repair and move on 
Another issue would depend on the installation, is there an overflow? Is it required? Read up on the installation instructions for the model.
What is an overflow?