This is such a cool joint. The inboard vee notch is generally entirely cut with chisel and mallet. As mentioned, cut the lap first to give yourself a reference for your combo square to check the progress on the chopping of the step notch. Stringy, tenacious wood and dry wood is not your friend for this type of work.

Because it resists efficient cutting with power tools it is seen only very rarely in new construction. There are a handful of framers who use it still, but it is pretty much not used in the timber frame industry.