Step up in cost basis refers to the process of adjusting the value of an asset for tax purposes when it is inherited by a beneficiary. The cost basis of an asset is the original value of the asset, which is used to determine the capital gain or loss when the asset is sold.

For example, let's say that Alice inherits a house from her aunt Jane. Jane purchased the house for $200,000 and it is now worth $500,000. Alice's cost basis in the house would be "stepped up" to the current value of $500,000. If Alice were to sell the house for $600,000, her capital gain would be calculated as $600,000 - $500,000 = $100,000. If Alice had inherited the house with Jane's original cost basis of $200,000, her capital gain would be calculated as $600,000 - $200,000 = $400,000.

In this example, the step up in cost basis allows Alice to pay capital gains tax on a lower amount, resulting in a lower tax liability. This can be particularly beneficial if the value of the asset has increased significantly since it was originally purchased.

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