Can a penalty for an early withdrawal of a CD be deducted from the gain of that same CD? What if the loss is greater than the interest earned? Can that be deducted too?

Yes and yes.  Enter it from the 1099 INT box 2.  It is an adjustment to income.  2022 the CD early withdrawal penalty goes on Schedule 1 line 18 which goes to 1040 line 10.

there should be no gain or loss on the CD but some Financial institutions do report redemption on a 1099-B that requires the owner to report accordingly.

No, you do not pay taxes on the early withdrawal penalty as you can deduct it for a taxable CD.

When you enter the interest income on Form 1099-INT, check the box next to 'My form has info in more than one box 1'. Then enter the penalty amount in box 2. This will reduce your interest income by the penalty amount.

@phildiane80