If it were me:

The first thing I'd do is pick up the TP roll holding open the water heater closet door. Put it in an emergency TP container.

After that I would start removing everything. Demo is a lot of work, but can be fun.

Once the basement is a complete blank canvass I would then look at ways to put the water heater and furnace into the same closet *safely* in all cases this is not a DIY project. (with ample room for service / replacement)

Once the furnace and water heater are nicely tucked away with service needs met, then the bathroom, then the rest of the basement.

The reason there is an order to this is that to move the Furnace there are ducting requirements that have to be met as well as venting flue gases, piping gas lines etc. *safety* requires those gas appliances to have proper combustion air. Otherwise they will produce carbon monoxide while running.

If you can leave the furnace where it is, move the water heater to be included in that closet that would be the easier lower cost option. But this will depend on your vision for this remodel. In some cases older home layouts are very problematic.

Anything other than this approach is more or less lipstick on a pig. You're not going to fool too many people doing that. If that is your intent, probably better to do nothing.

How does the furnace get air for combustion when the closet door is closed? You have a PVC pipe as the hot water flue. I would think the connection at hot water heater would have melted by now. There a several safety issues. Are you planning to do everything up to code when you do the renovation?