Will I or my friend owe taxes?

First off, I'm assuming you're both single.  As for the sale of your friend's house, if the house was your friend's primary residence and your friend used it as the primary residence for 2 out of 5 years before the date of sale, then a gain of up to $250,000 is excluded from tax.  Now concerning your house.  There are 2 ways the transaction can be structured.  First, your friend can make a gift to you of the amount.  This way you will own your house 100% and you will have no debt.  Under this approach, your friend will not own any of your house.  2nd, if your friend wants to own a portion of the home, then you must sell that portion to your friend.  Again, if the gain on sale is less than $250,000, you can exclude the gain.  Neither of you will be able to exclude the gain on the sale of your home, provided your friend acquires an interest in the home, for 2 years, so if you sell the home within the next 2 years, both of you will have to pay tax on any gain.