Incentive Stock Option - calculating cost basis when escrow "Holdback Amount"

[rsparkes85]

I received ISOs as part of my comp package when joining a start up. That start up was acquired in 2025 and so I received a small payout on the ISOs as a result of a "cashless exercise". The only tax form we received was the 1099-B and the only data it shows is the proceed amount and date sold. Turbotax is calculating the cost basis for me, but its calculating a loss, which seems misleading. Some amount was held back in escrow from the proceeds, as a "Holdback Amount", and nothing further was ever paid to me beyond the proceeds on the 1099-B. I assume it is this Holdback that is resulting in the loss being calculated. 

Is that right that a holdback can result in reporting a loss? 

The shares had a strike price of $15.70.

Price per share when exercised = $17.57

I had 76.631 shares after the cashless exercise, which I assume would have been a gross $1,346.41.
Proceeds on my 1099-B are $767.23.

So I assume the balance of $579.18 (1346.41-767.23) was in escrow as the "Holding Amount"

Turbotax is calculating a $433.77 loss? 

[ReneV4 · Accepted solution]

Yes. The missing $579.18 is the reason your proceeds are lower than your basis.  It is correct that the holdback amount in escrow can result in a loss because your 1099-B is only reporting the partial proceeds that you actually received ($767.23). 

Meanwhile, your cost basis for the shares is at least $1,203.11 (76.631 shares x 15.70 strike price), or up to $1,346.41 if your company reported the "bargain element" as compensation on your W-2. 

Therefore, subtracting the basis from the proceeds results in TurboTax calculating a loss. 

If you receive the escrowed/held back funds in a future tax year, you will generally report that payment when you receive it, similar to an installment sale where you receive a payment after the tax year sale.