I think you have a Swale

"A swale is a shallow, wide channel that manages water runoff on a property. Swales can be natural or man-made, and are also known as drainage ditches, bench drains, or V-ditches. "

In any case I believe it belongs on the F

I would probably enter the 1099G in other income, put an offsetting deduction as a negative on Line Z

then enter it on Schedule F as you would any other conservation expenses with a cost share offset received. (and the leftover $4000 might indeed be taxable).

I'm not an expert in Schedule F Conservation cost treatment, so this is a (slightly) educated guess, but it seems like it would get you to what might be close to a correct answer.