Bullets the way you expect.

Add timer to get rid of bullets.
Recognize when objects are hit.
Still issue with show and hide of Tanks.

Bullet.tscn

@@ -1,20 +1,21 @@
 [gd_scene load_steps=4 format=2]
 
 [ext_resource path="res://bullet.png" type="Texture" id=1]
-[ext_resource path="res://Bullet.gd" type="Script" id=2]
+[ext_resource path="res://Bullet_rigid.gd" type="Script" id=3]
 
 [sub_resource type="RectangleShape2D" id=1]
 extents = Vector2( 1.02081, 1.02438 )
 
-[node name="Bullet" type="KinematicBody2D"]
-script = ExtResource( 2 )
-__meta__ = {
-"_edit_group_": true
-}
+[node name="Bullet_Rigid" type="RigidBody2D"]
+gravity_scale = 0.0
+contacts_reported = 1
+contact_monitor = true
+script = ExtResource( 3 )
 
 [node name="bullet" type="Sprite" parent="."]
-position = Vector2( 0.0633631, -0.0659924 )
 texture = ExtResource( 1 )
 
 [node name="CollisionShape2D" type="CollisionShape2D" parent="."]
+position = Vector2( -0.0633631, 0.0659924 )
 shape = SubResource( 1 )
+[connection signal="body_entered" from="." to="." method="_on_Bullet_Rigid_body_entered"]

Bullet_area2D.gd

@@ -0,0 +1,44 @@
+extends Area2D
+
+# Max speeds
+const BULLET_SPEED = 40
+
+# Global Vars
+var velocity = Vector2.ZERO
+var heading = 0
+
+# Called when the node enters the scene tree for the first time.
+func _ready():
+	pass
+
+func set_velocity(new_velocity):
+	velocity = new_velocity
+
+func set_heading(new_heading):
+	heading = new_heading
+
+func _physics_process(delta):
+
+	#velocity.x = delta * BULLET_SPEED * cos(heading * (PI/180))
+	#velocity.y = delta * BULLET_SPEED * sin(heading * (PI/180))
+	#move_and_collide(velocity)
+
+	#if position.y < 10:
+	#	queue_free()
+
+	move_and_collide(velocity * delta)
+
+
+# Declare member variables here. Examples:
+# var a = 2
+# var b = "text"
+
+
+# Called when the node enters the scene tree for the first time.
+func _ready():
+	pass # Replace with function body.
+
+
+# Called every frame. 'delta' is the elapsed time since the previous frame.
+#func _process(delta):
+#	pass

Bullet_rigid.gd

@@ -0,0 +1,36 @@
+extends RigidBody2D
+
+# Global Vars
+var projectile_speed = 400
+var life_time = 0.9
+var deadTimer
+
+
+# Called when the node enters the scene tree for the first time.
+func _ready():
+	deadTimer = Timer.new()
+	deadTimer.set_wait_time(1.0)
+	add_child(deadTimer)
+	apply_impulse(Vector2(), Vector2(projectile_speed, 0).rotated(rotation))
+	SelfDestruct()
+
+func SelfDestruct():
+	yield(get_tree().create_timer(life_time),"timeout")
+	queue_free()
+
+
+# Called every frame. 'delta' is the elapsed time since the previous frame.
+#func _process(delta):
+#	pass
+
+
+func _on_Bullet_Rigid_body_entered(body):
+	#print("body: ", body.name)
+	#self.hide()
+	if body.name == "Tank1" or body.name == "Tank2":
+		body.hide()
+		deadTimer.start()
+		yield(deadTimer, "timeout")
+		deadTimer.stop()
+		body.show()
+

TankPlayer.gd

@@ -12,7 +12,9 @@ var heading
 var adj_heading
 var fire = 0
 var last_fire = 0
-var bullet_scene
+var can_fire = true
+var rate_of_fire = 0.4
+var bullet_scene = preload("res://Bullet.tscn")
 
 # Instance variables
 export var tank_sprite : Texture
@@ -26,14 +28,9 @@ export var initial_heading : float = 0.0
 
 func _ready():
 	heading = get_rotation_degrees()
-
 	$tank.texture = tank_sprite
-	bullet_scene = load("res://Bullet.tscn")
 
 func _physics_process(delta):
-
-
-
 
 	var turn = TURN_SPEED * (Input.get_action_strength(ui_right) - Input.get_action_strength(ui_left))	
 
@@ -44,10 +41,14 @@ func _physics_process(delta):
 		set_rotation_degrees(heading)
 
 	fire = Input.get_action_strength(ui_fire)
-	if (fire==1) and (last_fire==0):
+	if (fire==1) and (can_fire == true) and (last_fire==0):
+		can_fire = false
 		shoot()	
+		#yield(get_tree().create_timer(rate_of_fire), "timeout")
+		can_fire = true
 	last_fire = fire
 
+
 
 	var fwd = FWD_SPEED * delta * (Input.get_action_strength(ui_down) - Input.get_action_strength(ui_up))	
 
@@ -71,10 +72,15 @@ func shoot():
 	var spawn_point = gpos + (direction * distance_from_me)
 
 	var bullet = bullet_scene.instance()
+	bullet.set_global_position(spawn_point)
+	bullet.rotation = (adj_heading - 90)* (PI/180)
+	print("heading: ", heading)
+	print("adj_heading: ", adj_heading)
 	owner.add_child(bullet)
 
-	bullet.set_global_position(spawn_point)
-	bullet.set_velocity(direction * 100)
+
+
+	#bullet.set_velocity(direction * 100)
 	#bullet.transform = transform