Home buyer tax credit. I have read the Nondeductible Loss publication 544, but still can't understand the concept of not being able to obtain the tax credit if I am paying market price for the home purchased from my parents.

I believe the restriction is to reduce fraud, based on an assumption that family members are more likely to act coercively to take advantage of the credit. I could imagine a scenario if the credit was allowed between family members where you buy the house from your parents and get the credit, then immediately turn around and sell it back to them so they get the credit as well. I understand your frustration on this, and am not trying to suggest that your purchase would be anything less than totally honest and above board, but you can see the issue here.

I agree with ebaines.

The potential for fraud in these transactions is so great that it boggles the mind.

I have had multiple clients apply for this credit honestly and correctly, even though their underlying suitability for buying a house is questionable at best, not because they cannot afford it, but because the nature of their jobs is such that they may be moving in a year or less. I hope it does not blow up in their collective faces.