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I'm not a tax expert, but my understanding is that you have to pay tax on the entire amount of the IRA conversion, not just capital gains. If you think about the series of events, this makes sense... you put money into an IRA tax-free and are converting it to a Roth IRA in which you'll never pay tax on the back end. There's no way the government will let you get away with not paying tax on either end! So, if you convert a $10k IRA to a Roth IRA, you'll need to be prepared to pay taxes on the $10k in 2010 (unless there's a deferral option that's out there).

I think that your interpretation is correct though in instances where your original IRA contributions were not tax deductible for whatever reason. In this case, you've already paid taxes on the contributions, so you'd only owe taxes on capital gains (if any).

Nothing is straightforward in the tax code, so that is probably an overly simplified summary. I think the big picture though is that you need to have paid taxes on the amounts being converted to a Roth IRA.

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