Farmer purchased wetland mitigation credit

[dktax]

I cannot find anything on this subject and am hoping for some direction. Would this be tax deductible? Or would it be the same as a land purchase? He has the right to farm 1.3 acres with this purchase.

[Burke]

You say he purchased a credit? Is this some sort of state tax credit (not federal)?

[dktax]

I think so

The landowner was a member of the MN wetland bank. The way the farmer explained it is that he purchased only the top soil and is draining it for farm use. He paid $17000. The more I think about it, I don't think it is a deduction. The costs for draining would be but not the purchase.

[Burke]

If he purchased a state tax credit and is intending to use it on his tax return, then that is treated as a sale and purchase of property under IRC 1001. If he purchased it for less than it can be used for, then there may be a gain. This sounds more like an easement.