More pics:

I'd remove ALL the carpet and the vinyl flooring tin the kitchen, if your budget allows. We had a similar situation with an angled transition between carpet and vinyl in our open floor plan, and we removed everything and replaced with hardwood floors (Brazilian teak). It made SUCH a difference in the feel of the entire space. This is on the main level of a split level home - the stairs going up and down are both carpeted. What do you plan to do with the room the steps lead into? IS that the same carpet as the stairs?

Karri - thanks for your response, I bet your floors are gorgeous! This is in our basement and all the carpet is the same throughout and does need replacing. The area down the two steps isn’t anything right now, just has an old table sitting there. However, we are hoping to start remodeling our 80s time-warp upstairs, so don’t want to dump a lot of money into the basement right now if we don’t need to. So therein lies the dilemma: How do we get rid of the Petri dish in the bathroom without making the area look worse? Is it already so pathetic that having a little patch of different flooring in the bathroom won’t matter? Or would it be worth it to redo the kitchen and area outside the bathroom door? Will that just give us a different pathetic look?

Here’s a pic of the area off the kitchen.

I still say take it all out. And since it's a basement, use LVP (luxury vinyl plank). That's what we did! It's very budget-friendly and DIY-able, if you're handy. you could start with the area above the stairs, and leave the area below the stairs for later, if that works with your budget better.

The flooring forum here on Houzz has lots of idea about LVP, if you're interested.

If you have the budget I would rip it all out & put down LVT (Luxury Vinyl Tile). It's great for basements & will really update your space.

If you want to put the money elsewhere, just put tile in the bathroom. Bathrooms are generally treated differently than the rest of the home without being a design faux pas. I am remodeling and having wood everywhere except the bathroom floors.

Although the current green rug isn't the most attractive, it appears you have other more pressing design expenditures and it isn't a biological hazard the way the bathroom rug would be. You can make a decision on the rest of the flooring when your budget allows - and the different bathroom flooring wouldn't look odd if you change everything else or if you wanted to change at that time, it's a relatively small bathroom floor so additional costs would be minimal. But I would think a separate bathroom floor would be perfectly fine since the bathroom is a completely separate area.

Thanks for your comments I really appreciate the help. Yes, the green carpet needs to go! But the upstairs is even worse (better color, but older) and that’s where we spend most of our time so I think that’s where the money needs to go (along with new bathrooms, new kitchen, new everything...... my head just spins and bank account cringes lol!). Doing the entire basement in LV makes sense, but brings in the problem of our uneven floor (the area in question in level) and if it would be too cold (we live in ND). You’re right Karrie, that’s a flooring forum dilemma. So probably for now just do the bathroom. Any insight as to floor and paint color with that vanity?

I would still stick with LV for the bathroom floor & go with a medium walnut brown color or light oak with a creamy off white on the walls.

I think there is already enough wood in that small bathroom. I would opt for a light tile of some kind with a warm undertone so it doesn't fight the wood. It's pretty much a blank flooring slate - I assume you are not tied to the caribou shower curtain? LOL Once you pick the floor, pick the wall and accessories as it's easier to match paint to a floor than vice versa.

Thanks again everyone now we know what to look for and how much!