"Complicating matters... my 1099 shows that when I sold stock it was AFTER I exercised. You see, I did not conduct a cashless exercise. I paid cash up front to exercise and then took the cash back based on what i needed to pay myself back the cash."
I can't emphasize too, strongly here; HOW you effected the exercise has no effect on your basis in the stock.
If you pull cash out of your pocket to exercise, do a cashless exercise, or borrow the money to exercise from Uncle John, your per share basis is exactly the same: the sum of the per share strike price + the per share compensation created by the exercise. Since the per share compensation is based on the per share"fair market value" used by the employer to make the calculation in the first place, your per share basis is the SAME as the per share "fair market value" the employer used.
So the calculation of gain or loss for ANY sale of the stock for whatever reason - for taxes, for exercise or for "cash in my pocket" - uses the same mechanics: proceeds minus basis. You have a capital gain or loss, period.
