Yes, you would still prepare a Schedule E for Rental #1. From Pub 527: "If you receive property or services as rent, instead of money, include the fair market value of the property or services in your rental income. If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary".
Yes, you can still deduct expenses for Rental #1 because you do have rental income from services performed.
The expenses for building Rental #2 will be the cost basis of the building that will be used for depreciation. This would include materials, subcontractors, building permits, utility hook-up, etc. This will include all out-of-pocket expenses.
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