The short answer
A fitness center building exchanges like other commercial real estate: the land, the shell, the locker rooms, showers and an in-ground pool are real property, while cardio and strength equipment, sound systems and the membership business are not. The tax twist is the build-out. Interior work a landlord funds for a gym tenant is usually qualified improvement property in a 15-year class, and if it was expensed with bonus depreciation, the excess over straight-line is ordinary income on a cash sale but is deferred in a complete exchange. Single-tenant gym leases are underwritten on the operator's unit economics, so the lease term and guarantor drive the sale price.
At a glance
| In-ground pools | Listed as inherently permanent structures in the real property regulation |
|---|---|
| Interior build-out | Qualified improvement property: 15-year, bonus eligible |
| Build-out recapture | Bonus above straight-line is ordinary income on a cash sale |
| Exercise equipment | Personal property; franchise filer says clubs re-equip every five to nine years |
| Big-box operator | One public operator runs 189 clubs, 134 leased, averaging about 97,000 square feet |
| Master leases | Same filer: 55 properties under 15 master leases with 14 lessors |
| Franchise box | One franchisor's clubs are typically 20,000 square feet |
The shell, the locker rooms and the pool exchange; the treadmills and the membership base do not
Treas. Reg. section 1.1031(a)-3 lists in-ground swimming pools and paved parking among inherently permanent structures, and walls, partitions, plumbing, floors, ceilings, central heating and air conditioning and fire suppression among structural components. It also says tenant improvements that are inherently permanent are real property, so the locker rooms, showers, saunas and studio walls you paid for are part of the exchange.
Exercise equipment is personal property and so are rubber flooring tiles laid loose, mirrors on cleats and audio-visual systems designed to be moved. Planet Fitness's 2025 Form 10-K says its franchisees must replace club equipment about every five to nine years, which is a fair description of how quickly that layer turns over.
If you own both the club and the building, the sale of the business is an applicable asset acquisition under IRC section 1060: membership contracts are Class VI intangibles, goodwill is Class VII, and only the real-estate allocation reaches the intermediary.
The build-out you funded is where the ordinary-income recapture sits
Section 168(e)(6) defines qualified improvement property as an improvement to the interior of a nonresidential building placed in service after the building itself, excluding enlargements, elevators and the internal structural framework, and section 168(e)(3)(E)(vii) makes it 15-year property. IRS Publication 946 confirms that Public Law 119-21 restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025.
QIP is still section 1250 property. On a cash sale, section 1250 taxes depreciation above straight-line as ordinary income, the straight-line portion as unrecaptured section 1250 gain at up to 25%, and the rest as capital gain, with the 3.8% net investment income tax on top where it applies. In an exchange, section 1250(d)(4) limits the ordinary layer to gain recognized, as long as you acquire enough section 1250 property.
Hypothetical: a landlord buys a 40,000 square foot building for $6,000,000, funds a $1,500,000 gym build-out in 2025 and expenses it, then sells in 2026 for $9,000,000. On a cash sale roughly $1,400,000 of the gain is ordinary income because the bonus deduction exceeds a year of 15-year straight-line; a complete exchange defers it, and any boot you take is characterized as that ordinary layer first. Run your own numbers with your CPA.
Buyers price the operator, the lease structure and the cost of re-tenanting a gym box
Big-box clubs are sold and leased back as a matter of strategy. Life Time Group's 2025 Form 10-K reports 189 centers averaging about 97,000 square feet, 55 owned and 134 leased, says it expects to lease rather than own the majority of new centers through sale-leasebacks, and discloses 55 properties under 15 master leases with 14 lessors; some of its leases add percentage rent above a sales threshold.
Experiential REITs are the other buyer. EPR Properties' 2025 Form 10-K lists 27 fitness and wellness properties alongside its theatres and eat-and-play venues, mostly on triple-net terms.
For a single club, buyers ask what your lease says about term, escalators, guarantor and whether the site is in a master lease, then what the box costs to re-tenant. A pool, a two-story mezzanine or locker rooms sized for thousands of members are value to a gym operator and demolition cost to a grocer, which is why a short remaining term pulls the price toward land and shell value.
Replacement options: another gym lease, a retail or net-lease DST, or out of the sector
Another single-tenant gym on a long lease keeps the income familiar, but it concentrates the same operator risk; our single-tenant net-lease page covers how to read the lease. Many gyms are anchors in shopping centers, and the retail strip center page covers that setting.
A net-lease DST or other traditional DST spreads the equity across many tenants with no management. Under Rev. Rul. 2004-86 the trustee may not sign new leases except on a tenant bankruptcy, so a trust is a better home for long leases to credit tenants than for boxes that may need re-tenanting.
If you are a club owner selling the business too, the equipment recapture and goodwill are taxed outside the exchange; an accelerated depreciation fund is one way to address ordinary income, subject to the passive activity rules your CPA applies.
Buying a fitness center building as replacement property: operator economics and the build-out before day 45
Ask for the club's own operating statement and membership count, not only the parent's financials, and compute rent as a share of club revenue. Check the guarantor, the remaining term, any master-lease ties and whether the lease carries percentage rent that will rise and fall with membership.
Find out who paid for the build-out and who owns it at lease end. If the operator funded the locker rooms and pool and they revert to you, their value is in the price. If the lease still owes the tenant an unpaid improvement allowance, that is a cost you inherit, and money you spend after closing is not exchange value unless it runs through an improvement exchange inside the 180 days.
On depreciation, Treas. Reg. section 1.168(i)-6 carries your old schedule over to exchanged basis and only excess basis starts fresh. Name a backup under the three-property rule in Treas. Reg. section 1.1031(k)-1(c)(4), and underwrite the box empty: ceiling height, parking ratio and zoning for retail reuse.
Related questions
Is the swimming pool part of the real property I exchange?
Yes. In-ground swimming pools are listed inherently permanent structures in Treas. Reg. section 1.1031(a)-3, so a pool built into the building or the site is real property for the exchange.
My tenant paid for the build-out. Do I have recapture on it?
No, if the tenant paid for and depreciates the improvements, they are not your depreciation. If they revert to you at lease end, they become part of your real property without having been deducted by you.
Can I exchange my gym building into an apartment building?
Yes. Any real property held for investment or business use is like-kind; only the build-out recapture rules and the debt replacement test need attention.
I own the club and the building. Can I sell the club and keep leasing the building?
Yes. You can sell the business to an operator, lease the building to it and keep the real estate, or sell both and exchange only the real-estate share.
My gym tenant's lease is part of a master lease. Does that matter when I sell?
It can. A master lease ties the rent for several sites into one payment and default, and operators disclose them in filings, such as one big-box operator's 55 properties under 15 master leases; if your site is in one, the buyer will want the whole master lease and the guarantor's financials.
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.
- Treas. Reg. section 1.1031(a)-3, Definition of real property
- IRC section 168, Accelerated cost recovery system (qualified improvement property)
- IRS Publication 946, How To Depreciate Property
- IRC section 1250, Gain from dispositions of certain depreciable realty
- IRC section 1060, Special allocation rules for certain asset acquisitions
- Treas. Reg. section 1.168(i)-6, Like-kind exchanges and involuntary conversions
- Treas. Reg. section 1.1031(k)-1, Deferred exchanges
- Rev. Rul. 2004-86
- Life Time Group Holdings, Form 10-K for 2025
- Planet Fitness, Form 10-K for 2025
- EPR Properties, Form 10-K for 2025