Definately a tough decision.
Other factors to consider:
- in addition to the mortgage interest, the condo fees are also tax deductible, as are any maintenance costs.
- in the case that the property decreases in value by the time you sell, you wont pay any capital gains tax
- if it increases in value, you claim 1/2 that increase as income in the year you sell it. So your other income earned in that year will determine what rate this additional capital gain will be taxed at (your marginal rate). Thus another factor is how long you plan to hold the property. If you plan to hold it till retirement, the tax rate might not be as high as if you sold it while earning your lifetime maximum.
Also note that if your friend wants the tax deductions, I believe he must rent it to her at fair market value, and he must be earning a profit (or at least have an expectation to earn profit). It doesn't have to be a very high profit though.