Thank you for getting back to me and clarifyign some of your situation.
1. So you are telling me that you bought the car, and then you had a deal with your sister to purchase the car from you by making payments . IF THIS is the situtaion, in order to take this as a bad debt, your sister had to pay you interest at fair market rates. AND you would have had to report that interest as income.
Now in your first iteration of the question, it played like you had a "loan type" agreement with your sister to purchase this car from you or to at least repay you for the purchase price of the car.
2. BUT NOW from what you are telling me there really is no loan deal to buy the car from you, and the car is at best a gift.
BOTXXXXX XXXXXNE here: if she had an agreement with you to buy this car from you with interest, then it would be a loan. Now she defaults before any payment can be made. THIS would not be deemed as a valid loan unless you had a written document. The IRS will deny the deduction if you did not collect money or attempt to enforce the loan....for example turning it over to a collection agency. Filing a lien on her possessions, etc.
with this scenario you are now presenting, you are not going to be able to capture any of this on your taxes, without raising a red flag and risking audit; and I do not believe you will sustain this at audit without some sort of effort to collect and without having a signed loan contract with your sister.
This will be deemed a gift by the IRS unless when she sells the car, you get the money back. AND THEN, it is weak because you have no signed contract and have not otherwise collected money or reported any income from interest on the loan.
This is not a deductable.