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[Music] hi im paul herman of hermann and company certified public accountants located in white plains new york todays question is what are the tax implications of a promissory note so lets review what a promissory note is promissory note is a written promise to pay someone under a given set of terms which includes a rate of interest and a repayment date promissory note is an iou its a legal written evidence of a debt between two people two parties the person making the loan will receive interest income from the borrower the interest income will be taxable income and reported on that persons tax return as ordinary income the treatment for the person making the interest payment is a little more complicated because it can be treated in a variety of ways so let me give you an example lets say i buy a car from you a used car and we agree that im going to pay you ten thousand dollars but i can only afford to pay you five thousand dollars now so you agree to let me pay you the remainin