Answer:

Whether we add or subtract 1, the least-significant bit changes. The next higher bit changes (toggles) iff

• the lowest bit is 1 and we are adding, or
• the lowest bit is 0 and we are subtracting.

Actually, it might be easier to draw this with an adder:

The idea is to add 1 if 'sub' is 0, and add 7 (which is the same as subtracting 1, in three bits) if 'sub' is 1.