I signed a contract to buy and put up 1000.00 earnest money . I know my cash is gone , but the contractor built a garage because it was stated that we asked for it in the contract which we did , but it has taken a lot longer than expected and the times seem to be getting tougher ,so can we breach this contract and if so what can happen.

What can happen is he can make you pay for all his time, material, profit, expenses and legal expenses if it comes to that--if the circumstances are as they sound in your write-up.
If you had a completion date and he far exceeded it and can't give an acceptable explanation for delay (usually they can-its very lenient in contract law) you might have some room to negotiate. A written change to the contract should have been prepared if you didn't want the garage and that could have had impact on the remainder of the contract also. I am not a lawyer but I have experience with construction contract claims and that's where you are headed unless there is more I don't know, such as all the contract language. You need to have plenty of documentation to substantiate your side of the issue.

And I will ask, is the house not able to move in, even if the garage is not finished, Could perhaps a closing be arranged with a set amount of money put into escrow to pay for the garage after it is fininshed.