You and your client are confusing Equity (or worth minus loan balance) and Gain.

Equity = your ownership position. The more in debt you are against the value of the property, the less Equity you have in it. That means it is more leveraged than if there was no debt on it. That doesn't have anything to do with Basis or Gain. You could buy something for cash or fully as debt, and your Basis is the same. Your Equity is different, though.

sjrcpa tells you how to understand Basis.

Gain (simplified) is:

Sales Price minus Basis (and further reduction for allowed costs of making that sale happen, such as commissions paid) = Gain or Loss.

It seems both you and your client need some better guidance on this.