Once you have the house properly converted to personal use on your sch E in federal, it should flow over to your CA and be correct. You have to let the IRS and CA know what has happened to the house through these forms. Since you are no longer using the house as a rental then you need to mark that you converted everything to personal use. You "disposed" of the rental on your tax return by converting it to personal use. See About Publication 544, Sales and Other Dispositions of Assets. Follow these steps to dispose of your rental:
- Enter your return
- Go into the rental section.
- Edit the property being disposed of
- Edit the Property Profile
- Continue through the screens until you reach Do Any of these Situations Apply? Select converted it to personal use in 2021
- click continue until you get back to Review your Rental Summary
- Look down to Sale of Property/Depreciation, select Update
- Do you want to go directly to your asset summary?
- Select yes
- Your property assets screen
- you may have several things listed here, each needs to be disposed. Let's work on the house. Select Edit
- Describe - rental real estate property, continue
- Tell us more - residential rental real estate, continue
- Tell us about this rental asset:
- description - whatever you have had in there for years, continue
- Tell Us More About This Rental Asset
- Mark that the item was retired and the date
- Then mark if it was always business or converted, and the date
- continue
For a more complete picture, see my answer here for entry help.
Once the house became your property as a non-rental, you gifted it to your daughter. That involves a gift return since you are gifting above the allowed limit to your daughter. Her basis in the property will now be your basis. Alternatively, had you kept the house in your name, when you pass, she would have received a stepped up basis to the value on date of death. However, life is messy and we do what we must.
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