If it has not already done so, the estate needs to hire a competent tax professional who is based in California, since both federal and state inheritance laws will apply. The estate executor should handle that. You and your wife should not have to hire someone, because the taxes are all paid by the estate; YOU will owe no income taxes (see below).
If your valuations are correct, there will be federal estate taxes and CA state inheritance taxes.
Federal estate tax rates start at about 18%. There is a $1.5M exemption, so you looking at a federal tax bill in the $35 - $40K range ($1.7M minus $1.5M equals $200K X 18% = $36k).
I cannot address the California inheritance tax rates in detail, but, assuming that California also exempts $1.5M, it should not be much more than $10K (a guess on my part).
The FMV of all assets bump up to the FMV on the day of her Father's death, or on the day exactly six months later (at the estate's option). This is done for valuation purposes. Any inbedded capital gains (and the resultant taxes) are forgiven, so when your wife gets the rental property, it will have the day of death (or six months after) FMV as its basis.
You do not report any of the money/assets received from the estate on your joint income tax return. All inheritances are taxed by the federal estate tax/state inheritance taxes and are thereafter tax-free to the heirs. Assuming the properties will continue to generate income during the (at least) one-year period while the estate is being probated, the estate will file at least one and probably two fiduciary tax returns (Form 1041) and the estate will pay any federal/state income taxes due (another reason for the estate to hire the tax professional).
However, once the titles of the rental properties are transferred into your wife's name, you then must report the income generated by the property via Schedule E on your federal income tax return. Further, you will have to report the income on your Virginia state income tax return and, since the property is in California, file a California state income tax return. For these reasons, if you do not already use a tax professional, you will need to start using one. Be sure he/she is capable of filing a California tax return, which, BTW, is one of the more complicated state income tax returns to file.