Updated July 28, 2026. Quick answer: To keep ISO treatment you generally must exercise within three months of leaving (IRC §422(a)(2)). Miss it and the option does not vanish — it converts to NSO treatment, taxed as ordinary income on the spread at exercise.
Two different clocks people confuse
The plan’s post-termination exercise window is contractual and can be any length. The tax code’s three-month rule governs whether the option still qualifies as an ISO. A generous ten-year plan window does not preserve ISO status past three months — it just means you can still exercise, as an NSO.
Which outcome is actually worse
Not obvious. ISO treatment is better on rate but creates an AMT preference and requires holding periods you may not want. NSO treatment is ordinary income on the spread with withholding — higher rate, no AMT, no phantom income, no holding requirement.
If you were going to sell quickly anyway, the conversion costs you less than it sounds.
The expensive version is exercising inside the three months on a large spread, incurring AMT on shares you cannot sell, having just lost your income. Do not let the deadline alone drive that decision.
Sources
IRC §422(a)(2); Treas. Reg. §1.421-1(h); IRC §83(a) (NSO exercise).
This states what the cited authority says. It is not tax advice; AMT in particular is computed across your whole return and cannot be resolved from one page.