As Mom's POA I set up funeral trust to apply for Medicaid and it is gaining interest. Is this tax deductible income?

It's possible the income could count for Medicaid purposes. Likely, if your mom is on Medicaid, she may not have enough to pay income tax, but you should check with a CPA on both counts. Where you live may figure in to the Medicaid part.
Carol

Funeral trust accounts are established as a revocable, grantor trust. The IRS has ruled that any earnings are income to the owners of the account and must be declared as such.

My mother-in-law has a $10,000 whole life insurance policy. Since it has a cash value it would kept her from qualifying for medicaid. She made the funeral home the irrevocable beneficiary to pay for her funeral when she passes, so now she now qualifies for medicaid. We were also told that if any money were left over from the policy after the funeral, it would go to the State. Don't know if this helps you, just another way of paying for a funeral and qualifying for medicaid.

I must have been asleep on the day they taught Trusts..
Of the few questions on the final exam, only some pertained to re-vocable living trusts. Can't help you with this one.......

That sound crappy that your mnl, Thefixer had to make the funeral home pretty much the beneficiary in order to qulaify for Medicaid. Here she has some money on side to pay for her own death expense instead of letting the state pay for her funeral service when that time comes. I understand if their is any money afterward from the cost of the funeral and state get what belongs to them. Here is a person that pre-planned and prepared so that, her children would not have to worry nor the state have to pay for her funeral. Of course, it seem what she did worked out for her but its just a shame you have to go through all that, I mean that was her life insurance policy. Crazy world.