How are IRA payments taxed?

Whether or not the distributions are wholly or partially taxable depends on your contribution history. If all contributions (and rollovers from qualified employee plans) were made PRE-tax, then all distributions are fully taxable. If some contributions were made AFTER- tax (and documented by a timely-filed 8606 form) then some of the distribution may be tax-free. See the worksheets in Pub 590 to calculate the taxable portion.

Taxable IRA distributions are always ORDINARY income. Capital Gains do not exist within an IRA.