How should we go about doing this and how should we record rental income for the first year and record taxes?

However, you may need to discuss this scenario with a tax accountant to determine any tax advantage you may get using a land trust in this arrangement. 

Ok Stephen heres the deal i have to do the repairs and the payments are 1500 a month right now there are 2 apartment rented the first floor has to be done over complete to make it an apartment the two rents equal the 1500 the new apartment would bring in 1300 a month taxes are 5500 water an sewer are 1050 ins 2400 snow removal 500a year put  away 500a ayear for repairs the 1500 goes towards the principle theres no interest and the balloon payment in 5 years

I looked up the tax records and it's actually held by an investment LLC out in Cali.

I looked at the tax info on the property and found the address of the owner(they live out of state).

I'm considering starting an LLC that I can run rental income and expenses through for the main purpose of starting a retirement plan (probably a solo 401k) so that I can start socking away some income into a tax deferred account.

This response neither constitutes legal or tax advice nor establishes an attorney-client relationship.

Will the IRA be subject to self employment taxes (because this is a flip) or will it just be taxed as ordinary income? 

Both are good locations, but i believe the taxes are higher in new britain.  

Another avenue you might want to consider is tax deed land sales that start coming up toward the end of the year.