The short answer
The land and building of a bowling center, cinema or family fun center can be exchanged, but the lanes and pinsetters, projection and sound systems, arcade games and attractions are personal property in a 7-year recovery class, and the operating business is sold separately under the asset-allocation rules. That makes the purchase price allocation the first decision in the sale. Buyers of the real estate are mostly net-lease landlords and operators with sale-leaseback programs, and they price a purpose-built box on what it would be worth if the operator left.
At a glance
| Recreation equipment | Asset class 79.0: 7-year GDS, 10-year ADS, covers bowling alleys and theaters |
|---|---|
| Buildings | Excluded from class 79.0; depreciated as nonresidential real property over 39 years |
| Like-kind scope | Land, building and structural components only |
| Business sale | Residual-method allocation and Form 8594 filed by buyer and seller |
| Experiential REIT | One filer owns or finances 148 theatres and 60 eat-and-play properties |
| Bowling operator | 366 venues; 292 of its US locations leased, 69 owned at June 28, 2026 |
| Lease form | Master leases and percentage rent are common in filed reports |
The box exchanges; the lanes, the projectors and the arcade go on a separate bill of sale
IRS Publication 946 places assets used to provide entertainment for a fee or admission charge, as in bowling alleys, billiard halls, theaters, concert halls and miniature golf courses, in asset class 79.0 with a 7-year recovery period. The class expressly excludes the buildings that house those assets, which are nonresidential real property recovered over 39 years.
For the exchange, Treas. Reg. section 1.1031(a)-3 keeps the building, its walls, floors, wiring, plumbing, HVAC and fire suppression systems on the real-property side, along with parking lots and outdoor lighting. Bowling lanes and pinsetters, projection booths, recliner seating bolted to risers, laser-tag arenas and redemption games are analyzed under the regulation's factors, and equipment designed to be removed and replaced on a cycle lands on the personal-property side.
If you operate the venue and sell the business with the building, IRC section 1060 applies: the written allocation binds both parties, the Form 8594 instructions put equipment and real estate in Class V and goodwill in Class VII, and only the real-estate share goes to your qualified intermediary.
Seven-year equipment means heavy recapture outside the exchange
Equipment in a 7-year class has usually been fully depreciated, often in the first year with bonus depreciation, which Public Law 119-21 restored to 100% for property acquired and placed in service after January 19, 2025, as Publication 946 reflects. Whatever you are paid for it is ordinary income under section 1245, and the exchange does not reach it because it is not real property.
The building is section 1250 property. Straight-line depreciation comes back as unrecaptured section 1250 gain taxed at up to 25%, and any bonus taken on qualified improvement property, such as a lobby or party-room remodel, is additional depreciation taxed as ordinary income on a cash sale and deferred in a complete exchange.
Hypothetical: an owner-operated bowling center sells for $8,000,000, allocated $5,500,000 to land and building, $1,000,000 to lanes, pinsetters and games with a zero basis, and $1,500,000 to goodwill. The $5,500,000 can go through the exchange; the $1,000,000 is ordinary income and the $1,500,000 is taxable business gain in the year of sale. Run your own numbers with your CPA before you sign the allocation.
Net-lease buyers price re-use risk, so the lease and the operator matter more than the building
EPR Properties' 2025 Form 10-K shows the largest buyer of these boxes: 148 theatre properties, 60 eat-and-play properties and 26 attractions, leased mostly on triple-net terms with rent escalators or percentage rent. It also shows the risk: its two largest theatre tenants produced 13.6% and 11.5% of total revenue, it states a strategy of opportunistic theatre dispositions, and one of three theatres it sold in 2025 was vacant before the sale.
Operators recycle capital through the same structures. Lucky Strike Entertainment's fiscal 2026 Form 10-K lists 366 venues, with 292 of its US locations leased and 69 owned; it reports $408.5 million of sale-leaseback financing in fiscal 2024, a $306 million purchase of 58 properties it had leased under a master lease, and master leases that cross-default to its credit facility.
For a single venue, the questions are the same ones those filers answer: rent as a share of the venue's sales, the guarantor behind the lease, whether the site is part of a master lease, and what the building is worth if the operator leaves. A theater with stadium-seating risers or a bowling center with long clear spans needs capital to become anything else, and buyers deduct it.
Replacement options: another venue on a net lease, a diversified DST, or out of the sector
Buying another venue keeps you in a business you understand, but under a single operator it concentrates the risk you are selling. The single-tenant net-lease page and our triple-net page cover coverage ratios and guarantor review.
A diversified traditional DST spreads the proceeds across many tenants and sectors with no management; under Rev. Rul. 2004-86 the trustee cannot re-lease a dark property except on a tenant bankruptcy, which is why tenant credit matters more inside a trust. If you are leaving the operating side altogether, the business owner to passive investor guide sets out the sequence.
The taxable legs, equipment recapture and goodwill, are where an accelerated depreciation fund or an opportunity zone fund can be considered, each with its own deadlines and limits for your CPA to apply.
Buying an entertainment venue as replacement property: the operator, the lease and the fixtures before day 45
Ask for the venue's own operating statement, not only the operator's consolidated numbers, and compute rent coverage at the site. Check whether the lease is guaranteed by a parent, whether it sits in a master lease with other venues, and whether rent includes a percentage-of-sales component that will move with attendance.
Read the fixture clause. If the operator owns the lanes, seats and games, you are buying land and building only and the whole price is exchange value. If the seller is transferring equipment to you, that part is not like-kind and exchange funds spent on it are taxable boot; the incidental property rule in Treas. Reg. section 1.1031(k)-1(c)(5) only keeps equipment worth up to 15% of the real estate from counting as a separate identified property.
Underwrite the box empty: ceiling heights, column spacing, parking ratio and zoning for retail, fitness or other reuse. Then name a backup under the three-property rule in paragraph (c)(4) of the same regulation, because operator financials often arrive late.
Related questions
Can I exchange the bowling lanes along with the building?
Generally no. Lanes and pinsetters are recreation equipment in a 7-year class and are designed to be replaced, so they are personal property for the exchange; their sale price is taxed as section 1245 recapture.
I lease my cinema to an operator. Do I need a business allocation?
Not if the operator owns the seats, screens and projection equipment and the business; you are selling real estate only. Confirm through the lease which improvements revert to you.
Does percentage rent affect the exchange?
Not the tax rules; percentage rent is rental income like base rent. It does affect diligence, because it moves with the venue's sales, so a buyer will ask for site-level sales history before pricing it.
What happens if my theater tenant goes dark before closing?
The buyer will usually reprice or walk, and the exchange clock does not start until your sale closes. If it closes and the replacement falls through, a DST can be a backup identification.
Is a family fun center with outdoor go-karts all real property?
The land, paving and permanent structures are, but karts, games and portable attractions are personal property, and track features are judged under the regulation's permanence factors.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- IRS Publication 946, How To Depreciate Property (asset class 79.0)
- Treas. Reg. section 1.1031(a)-3, Definition of real property
- IRC section 1060, Special allocation rules for certain asset acquisitions
- IRS, Instructions for Form 8594
- IRC section 1245, Gain from dispositions of certain depreciable property
- IRC section 1250, Gain from dispositions of certain depreciable realty
- Treas. Reg. section 1.1031(k)-1, Deferred exchanges (identification and incidental property)
- Rev. Rul. 2004-86
- EPR Properties, Form 10-K for 2025
- Lucky Strike Entertainment, Form 10-K for fiscal year ended June 28, 2026