How stock splits work

In a stock split, a company increases its share count while reducing the price per share proportionally. The total market value remains unchanged immediately after the split. A 2-for-1 split doubles your shares and halves the price per share.

New share price = Old share price ÷ Split ratio
New shares held = Old shares × Split ratio

Forward vs. reverse splits

Forward split (e.g., 3-for-1): increases share count, decreases price. Used by high-priced stocks to improve affordability and liquidity. Examples: Apple 4-for-1 (2020), Tesla 3-for-1 (2022).
Reverse split (e.g., 1-for-10): decreases share count, increases price. Often used by low-priced stocks to meet exchange minimum price requirements. Generally viewed negatively by markets.

Cost basis adjustment

After a stock split, your cost basis per share adjusts proportionally. If you bought 100 shares at $200 (total $20,000) and there is a 4-for-1 split, you now have 400 shares at $50/share - your total cost basis stays at $20,000.

Why companies split their stock

Affordability and liquidity: high share prices (e.g., $1,000+ per share) can be a psychological barrier for retail investors and reduce liquidity. Lowering the per-share price through a split makes the stock accessible to more investors and typically increases daily trading volume.
Index inclusion requirements: some indices and mutual funds have price-per-share constraints for inclusion. Splits can help a company remain eligible.
Exchange listing requirements: major exchanges like Nasdaq require a minimum bid price (typically $1). A reverse split is sometimes used to bring a low-priced stock back above this threshold and avoid delisting.

Split-adjusted historical prices

Historical stock price data in databases and financial apps is typically shown on a split-adjusted basis - meaning past prices are retroactively adjusted to reflect all subsequent splits. This is why Amazon's historical charts might show prices that appear to be around $0.10–$0.20 in the late 1990s: those values have been divided by all the forward splits that occurred since, including the 20-for-1 split in 2022.

When analyzing returns or cost basis, always confirm whether the prices you are comparing are split-adjusted or unadjusted.

Tax implications

Not a taxable event: stock splits (forward or reverse) do not trigger a capital gains tax event. You neither gain nor lose taxable income when a split occurs.
Cost basis spreads: your total cost basis stays the same, but is spread across the new larger number of shares. Your broker should update the cost basis per share in your account automatically.
Wash-sale rule: the wash-sale rule (which disallows a loss if you repurchase a "substantially identical" security within 30 days) does not apply to splits - a split does not constitute a sale.