You can gift it to her and both you and your wife would use $250,000 of your lifetime gifting exemption ($1,000,000 each). However, in order for your daughter to use the IRC Sec. 121 exclusion (i.e. $250,000 exclusion if single/$500,000 if MFJ) she has to have OWNED and USED the property as her principal residence for two out of five years as of the date of sale. Thus, after you gift it to her she still has to wait two more years in order to take advantage of the full exclusion.
If you make the gift, both you and your wife would be required to fill out gift tax returns (i.e. Form 709) for the year of the gift. As I mentioned above, you each would use $250,000 of your $1,000,000 lifetime gifting exemption assuming you both agree to split your gifts. You may gift up to $1,000,000 each during your lifetimes before you have to begin actually paying the IRS gift tax.
Depending on your intentions, you might consider making a charitable gift of the property (assuming its debt free) to a charitable remainder trust (i.e. CRT). The CRT is a trust that is a charitable entity that receives the property and sells it free of tax. The proceeds are reinvested, unsually in a pool of securities, and a set percentage of the portfolio (usually, 5-8% of the value) is paid out to an income beneficiary quarterly. In calculating the potential payouts to the income beneficiary, the tax law provides that at least 10% of the CRT assets must go to the 501(c)(3). Thus, depending on your ages (and your daughter's age) you may be able to structure an income stream to yourselves or to your daughter (via gifts of the income or as a secondary income beneficiary). Once the "income" beneficiary passes away, then the remaining assets in the trust goes to a 501(c)(3) charity you select. The income received by the beneficiary is taxed generally as a mixture of ordinary and capital gains income.
If you sell the property you will obviously have to pay capital gains tax (max 15%) on the gain. CA treats gain as ordinary income. So on a net basis your looking at a tax cost that will be roughly equivalent to 22% of the gain.