Change out the lampshades for pure white. I would replace the rugs and reupholster the 2 chairs in a color to go with the new rug(s) before buying a new couch. A brighter picture over the mantel and no wider than the firebox would be an update. Style the bookcase with 1/3 books, 1/3 large decor items and 1/3 open space. Remove any items that hit at knee level or below (except for the dog.) Remove all the photos and reorganize them in a grouping no wider than 75% of the new sofa's width. Better yet, blow up some favorites and hang them in a more modern manner.

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Paint the paneling, clean up the built-in shelving, rearrange your framed art and lessen the amount, look online for a new couch to add some color and maybe paint the back wall of the built-ins a color to go with the new couch.

What a great room! I agree with Beverly. Zhuzh up the upholstered pieces you have instead of buying new.

I wouldn't change anything else except maybe switch up the photographs into a more planned gallery wall behind the sofa:

What about a nice beige or white couch?

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I'm in love with this room and would leave much of it alone.

1. Sofa

I'd suggest a sofa with a tight back so the pillows don't get slouchy - so common in tv rooms. I like the color of your current sofa and would go for something similar, perhaps with the addition of a bit of brown similar to the rug background.

I'm a fan of getting a quality vintage sofa with good bones cheap on craigslist, eBay, or Etsy and then having it reupholstered with quality cushions and new fabric. It will last longer than anything you buy new and when the cushions are shot or you want new fabric, have it recovered.

2. Photos / Art

I'd get a large rectangular vintage piece of artwork or craft to frame for over the sofa. I'd get all of your family photos reframed with the same frames. Keep the current vertical line up in the same position. Find another space in the room for a similar vertical line up using the rest of the pics currently over the sofa.

3. Declutter

I'd give the shelves a bit more breathing room by removing 1/3 of the objects and arranging them nicely. I'd remove the lamps on the mantle and consider simple, small sconces instead, nothing too fussy and with no shade or a minimal shade.