Step-Up in Tax Basis

An increase in the tax value of acquired assets to the price paid for them. It happens in an asset purchase, and in some share purchases by election (in the US, under section 338(h)(10) or 336(e)). The buyer can then deduct the write-ups and goodwill over their tax lives, which saves cash tax, and no deferred tax liability arises on the write-ups. The seller usually pays more tax on an asset sale, so the step-up is worth agreeing to only when the buyer’s saving exceeds the seller’s cost.