Entering a 1099-G as farm income

My wife received a sizable 1099-G grant from the state, with amount listed in box 6 (taxable grants).  The grant was issued to her and references the name of her farm business (she is a sole proprietor).  The grant was one of many issued to farms by the state for the purpose of improving food security through infrastructure improvements.  In this case, the grant was issued on a condition that she make a major renovation of the barn, including installation of cooler, bathroom, heating systems, wash pack, etc.  She completed the conditioned improvements prior to the end of year, and the cost of the improvements exceeded the amount of the grant.  My inclination is that the improvement should be treated as a capital asset, and its value depreciated over the life of the asset.  Had she not received a grant, this is certainly the way it would be handled, however, because she received the grant, I'm thinking the amount that is depreciated should be reduced by the amount of the grant.  In other words, only the net cost of the improvement would be depreciated.  My thinking is consistent with the "capital approach" described in IAS 20.  Others believe that the "income approach" would be appropriate.

Entering this grant in TurboTax seems awkward, and I'm having trouble and spending too much time on this.  I've searched some other threads and the suggestions for how to deal with it are varied and conflicting, and I think Intuit should address some resources to this situation, and update its software, such that its customers can handle this without so much difficulty.

One option would be for me to reduce the cost of the improvement by the amount of the grant, and simply report the net cost of the improvement as its basis.  The problem with this approach is that the IRS has been sent a copy of the 1099-G and apparently requires recognition of it on our tax return.  So, this option, although the one I'd like to use, does not appear to work within TurboTax.  It would be a "red flag".

Another option, and the one that I first followed, is to use the suggested path within TurboTax.  Here are the steps I followed:

1) Use the search box for "1099-g" and then click "Jump to 1099-g".  The software directs to the PERSONAL tab. 

2) Under Personal Income>Other Common Income>Other 1099-G Income, click the Start/Update button.

3) Answer Yes to the question about whether we received Government Payments (1099-G), and information about the recipient. 

4) Then, a key question arrives: "What Type of Payment Did You Receive?".  There are five options, including a) Taxable grant, b) Agricultural program payment, and three others.  As the 1099-G amounts are reported on box 6 as "Taxable grants", it seemed to me that it would be appropriate to enter the payment here as a Taxable grant. 

5) Enter the details on the 1099-G, including under the section "Payment Information" the amounts reported on boxes 2, 5, 6, 7, and 9.  In this case, there is only one amount reported, and it is on box 6, and that is where I report it. 

The net result of this option is that the grant amount is treated as personal income and is reported on Schedule 1, Part I, line 8z as "Other Income" - "Taxable Grant from Form 1099-G".  In this case, there is no way to directly deduct from this income the monies spent executing the project, and our income taxes would substantially rise this year as a result of this grant.  One benefit is that this grant income would not be subject to SE tax.  One workaround for this might be that the monies spent executing the project could be treated as an asset and (if allowed) wholly or partially written off in 2021, or alternatively depreciated over the life of the asset.  If wholly written off in 2021, this would have the effect of showing her farm income as a loss, which again isn't really appropriate.  Bottom line, this option would unnecessarily show a very high personal income and would show a corresponding loss on the farm income side.

A third option is similar to the second option, except that on step 5) instead of reporting the amount in box 6 as a taxable grant, report the amount in box 7 as Agricultural Payments.  Turbo Tax adds an additional step - "Indicate Payment Type" and I indicate Agricultural program payment.  It then asks to identify the source of this agricultural program payment, as either "a farm you operate" or "a farm or farm land you rent out".  I choose the former and pick the name of my wife's farm business.  The net result of this option is that it reports the income on Schedule F, and in our case because we use the accrual method, the amount is listed on Line 39a.  A related element of how to treat this option would be where to apply the expenses used in making the improvement.  I will attempt to place these expense in an asset, and write off this year the amount of the grant.  The remaining costs, those which exceed the amount of the grant, will be depreciated over time.  Overall, this seems to work, but I don't like the fact that the 1099-G shows this as Box 6 and that I have to enter it as Box 7 within TurboTax.

Seems like every year I have to find some workaround within TurboTax to deal with the particulars of our tax situation.  I wish I didn't have to work this hard at it.