The short answer
The land and nursing building can go through a 1031 exchange, but the operating license, certificate of need or bed rights, the Medicare and Medicaid provider agreements and the business are not real property and never reach your intermediary. Most skilled nursing real estate is held in a property company that leases to an operating company, and the clean exchange is the property company selling its building to a buyer that leases it to a licensed operator. Buyers, chiefly healthcare REITs, price the operator's rent coverage, which turns on Medicaid mix and the annual Medicare rate update, and they often fold the building into a master lease.
At a glance
| Like-kind scope | Land, building and structural components; business licenses never qualify |
|---|---|
| Leasing a provider facility | Counts as a change of ownership of the leased portion for Medicare |
| Provider agreement | Assigned automatically to the new owner or lessee on a change of ownership |
| FY 2027 Medicare SNF update | Net market basket update of 2.4%, effective October 1, 2026 |
| Largest SNF landlord | 1,027 facilities, 561 of them SNFs, run by 89 operators |
| Lease form | Substantially all triple-net; most under master leases with one monthly payment |
| Building depreciation | Nonresidential real property, 39 years |
The building exchanges; the license, the bed rights and the provider agreements stay with the business
Treas. Reg. section 1.1031(a)-3(a)(5)(ii) states that a license or permit to engage in or operate a business on real property is not real property, regardless of state law. A nursing facility license, a certificate of need and the bed authority attached to it are licenses to operate a business, so any value a buyer pays for them is taxed outside the exchange, along with furniture, nurse-call equipment designed to be moved, vehicles and goodwill.
The building side is broad. Walls, plumbing, central HVAC, sprinkler and fire alarm systems, security and wiring are listed structural components, and the parking lot is an inherently permanent structure. If you sell the operating business and the real estate together, IRC section 1060 requires a residual-method allocation reported on Form 8594, and only the real estate share goes to the intermediary.
Owner-operators usually hold the two halves in separate entities: a property company that owns the building and an operating company that holds the license and leases the building. The property company is the taxpayer for the exchange, and its sale is a real-estate sale even if the operating company's business is sold to a new operator at the same closing. The senior housing page covers assisted living and memory care, where states rather than Medicare control licensing.
Medicare treats a lease as a change of ownership, which shapes how buyers structure the deal
Under 42 CFR 489.18, the lease of all or part of a provider facility constitutes a change of ownership of the leased portion, and the existing provider agreement is assigned to the lessee to the extent of the leased portion, subject to every existing plan of correction and compliance requirement. A provider contemplating a change of ownership must notify CMS.
That is why a real-estate buyer never takes the license. A REIT buys the building and leases it to a licensed operator, and the operator, as lessee, takes the provider agreement with its survey history. For your exchange this means the closing has two tracks, the real-estate deed and the operator transition, and the 45-day and 180-day periods start with the deed, so the operator's approvals should be mapped before you sign.
Hypothetical: a property company that bought a 120-bed building for $6,000,000 and took $2,000,000 of depreciation sells it for $12,000,000 to a REIT that leases it to a new operator. The $8,000,000 gain, including $2,000,000 of depreciation taxed at up to 25% if paid in cash, defers in a complete exchange. Run your own numbers with your CPA.
Buyers price the operator's coverage, Medicaid exposure and the master lease
Omega Healthcare Investors' 2025 Form 10-K describes the dominant buyer model: 1,027 operating healthcare facilities run by 89 third-party operators, including 561 SNFs, substantially all on triple-net leases, most under master leases that require one monthly rent payment covering every property in the lease. Some of its leases carry operator purchase options or landlord put options.
The same filing warns that operators' margins on Medicaid patients are generally low, so cuts to Medicaid rates or a rising Medicaid share can hurt operators and their landlords. On the Medicare side, CMS's FY 2027 SNF prospective payment final rule sets a net market basket update of 2.4% for rates effective October 1, 2026.
For a single building, buyers ask for the operator's rent coverage, payer mix, survey and staffing history, and whether the facility will enter an existing master lease with that operator. A building that slots into a strong operator's master lease is worth more than the same building leased alone to a weaker one.
Replacement options: another healthcare building, a senior housing DST, or out of the sector
Staying in skilled nursing means buying a building already leased to a licensed operator, because you cannot run the facility through a passive replacement. A senior housing DST spreads the equity across several communities leased or managed by licensed operators, and our senior housing investment page explains how we review them.
Rev. Rul. 2004-86 bars a DST trustee from operating a business or renegotiating leases, which is why healthcare trusts use a master lease to a tenant that runs the operation; our master lease risk page covers what happens if that tenant fails.
Owners leaving healthcare entirely often move into multifamily, industrial or net-lease traditional DSTs, trading reimbursement risk for other market risks.
Buying a skilled nursing building as replacement property: operator, coverage and survey history before day 45
Underwrite the operator before the building. Ask for the operator's facility-level financial statements, rent coverage, payer mix, the most recent state survey results and any plan of correction, since 42 CFR 489.18 carries those obligations with the provider agreement.
Read the lease for term, guaranty, cross-default to other facilities, capital expenditure obligations and any operator purchase option, which can cap your upside. Confirm that the bed license and certificate of need stay with the facility if the operator leaves, so a replacement operator can be installed.
Then check the building: life-safety compliance, sprinkler and generator systems, and room configuration against current standards. Name a backup under the three-property rule in Treas. Reg. section 1.1031(k)-1(c)(4), such as a senior housing DST, because licensing reviews can outrun 45 days.
Related questions
Can I exchange the value of my bed licenses?
No. A license or permit to operate a business is not real property under Treas. Reg. section 1.1031(a)-3, so any price allocated to licenses, certificates of need or provider agreements is taxed outside the exchange.
I own both the operating company and the building. Can the building company exchange?
Yes. The property company sells the real estate and exchanges, while the operating company sells its business separately; each entity is its own taxpayer.
Does the new operator's CMS approval affect my exchange deadline?
The 45-day and 180-day periods run from your transfer of the real estate, not from CMS action, so plan the operator transition so the deed can close on schedule.
What is a master lease and why do buyers want one?
A master lease covers several facilities with one operator under one rent payment, as the largest SNF landlord describes in its filing. It lets a strong facility support a weaker one, which is why buyers like to fold new buildings into an existing master lease.
Can I exchange from a nursing home into an apartment building?
Yes. All real property held for investment or business use is like-kind; the replacement must be equal or greater in value and debt to defer all gain.
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 (licenses and permits)
- IRC section 1060, Special allocation rules for certain asset acquisitions
- 42 CFR 489.18, Change of ownership or leasing: effect on provider agreement
- CMS, FY 2027 SNF Prospective Payment System final rule (Jul 31, 2026)
- IRS Publication 946, How To Depreciate Property
- Treas. Reg. section 1.1031(k)-1, Deferred exchanges
- Rev. Rul. 2004-86
- Omega Healthcare Investors, Form 10-K for 2025