If I claim the adoption grant at $40,000 as part of my income (received a 1099-G), is this considered part of my adjusted gross income?

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Adoption assistance is generally not considered to be taxable income for federal purposes.  It may be taxable in some states. Check with your state taxing agency.

However, any portion of adoption expenses that are paid with the subsidy can't be claimed as amounts paid for the Adoption Credit.

Tax benefits for adoption include both a tax credit for qualified adoption expenses paid to adopt an eligible child and an exclusion from income for employer-provided adoption assistance. 

The credit is nonrefundable, which means it's limited to your tax liability for the year. However, any credit in excess of your tax liability may be carried forward for up to five years. 

There are income limits for both the adoption credit and adoption income exclusion.

Additional information can be found by clicking here.

Click here for additional information on the adoption credit.