You will generally pay ordinary federal income tax (but not the 10% penalty tax) on the taxable amount that is converted. Your tax-free potential is maximized if you pay the taxes from your current income or personal savings, not your IRA.
Please note that beginning in 2010 the $100,000 adjusted gross income limit for conversions to Roth IRAs is permanently repealed. From 2010 onward, all taxpayers, regardless of income, can convert to Roth IRAs. Also, for conversions occurring in 2010, the taxpayer has the option to report one-half of taxable income in 2011 and one-half in 2012 or the full amount in 2010. After 2010, conversions must be reported in full in the taxable year in which they are made.