Mahal can mean two things. Expensive and love(verb).
Kita does not really mean you and I. It is often used when you did something/will do something/are doing something to someone (basically "I {verb} you".). Kita is more of a replacement of ko ikaw rather than ako mo. Sometimes you'll hear native speakers say "pupuntahan ko ikaw", though that's kind of considered a "baby speech". (Note: pupuntahan ako mo does not make sense)
Sinampal kita (I slapped you, not "you and I are slapped").
Tinadyakan kita (I kicked you, not "you and I are kicked").
Sinakal kita. I choked you.
Palalayain kita. I will free you.
Pupuntahan kita. I will visit you
Kailan kita pwedeng bisitahin? When can I visit you?
Saan kita titignan? Where will I meet (see) you?
Nakita kita kahapon. I saw you yesterday.
Tatawagan kita mamaya. I will call you later.
Hindi kita kilala. I don't know you.
So yeah, the proper translation of Mahal kita is I love you.
No, kita is not dying out. You probably are not encountering it YET. It's pretty much part of daily speech.
Search "Di Ako Bakla" by Michael V and it has the phrase "sasampalin kita"
This page has lots of examples of how kita is used:
www.tagalog.com/word s/kita.php
Edit: what is actually in disuse is "kata". It's now replaced by tayo, which I think comes from languages further north.
Edit 2: you might actually be referring to the old use of kita. It still can be heard in areas like Nueva Ecija, but in standard Tagalog, *kita* now means "I {verb} you". This is the context of "Mahal Kita".