Without seeing the entire room (all 4 walls) and knowing how you plan to use the space and what furniture you are putting there, we're working blind. I don't think it will be a good feature from a selling standpoint. A deal breaker? Maybe or maybe not. If I were buying your home I'd probably be removing it.

Just had to re-paint previously-painted old wood paneling. I'd like to point out that old paneling will have a lot of imperfections in it, and you will need a lot of paint, even some caulk or plaster, to fill up those imperfections and make the paint job look smooth. I'm going to vote on the side of refinishing the wood to make it look new, or maybe whitewashing it, rather than painting it. Once you put the paint on, it'll be easier to remove the paneling rather than removing the paint off the paneling. I will acknowledge that painted paneling has the potential to look very good. It depends on the look you're going for. Paneling certainly can be overwhelming, but it looks like you only have partial paneling. Maybe you could post a picture of the whole room and explain the style you're going for in your remodel.

Yes, seeing more of the room would help. I can tell you we've had paneling painted in the past that turned out great. Not sure it matters but our paneling was floor to ceiling with the grooves vertical.

Just seeing the small portion in your photo makes me lean toward removing it.

Here is a better picture of the walls. Ignore the ceilings, they need to be painted! The living room has 9 walls connecting the kitchen and hallway, it is a big space but this is all I can show. The furniture is out of the rooms since I am in the middle of painting, but it all needs to be replaced anyway. The style I want is modern farmhouse. Light woods, bronze finishes, and neutral greys, whites, blues, and greens. I am also adding crown molding to the ceilings.

Yes, I would paint it.

For the purpose of selling my rule is to spend as little as possible and make the home appear well maintained. Rule of thumb is that you will recoup 50% of renovation costs when you sell. The other 50% is gifted to the new owner.

In this case the small picture of paneling that you are showing shows signs of wear and tear. Choices are:

Painting

Re staining

Covering

Removing

I would not just leave it as is. It makes it look like the home was not well maintained and you didn't care.

My first choice would be to pull it off and patch and repair the wall, then repaint the entire room. I understand you feel this is too much work, so scratch that idea.

Sanding and re-staining will not improve the issues with you feeling that the room is dark and clashes with the furniture you own, so scratch that idea.

Painting this will show the groves and grain pattern - may not be a completely attractive look.

Filling in the grooves, covering with wall liner and then painting may be your best option.

Paint it.

Its not attractive and cuts the room in half. There is most likely sheetrock under it. I would carefully pry it all off, and patch all the nail holes, and prime and paint it.

Removing it seems to be the better option. I never liked it anyway! I admit I thought it would be easier to paint it and be done. I just looked over it and there are way too many things that needed fixing! Now that I think about it doing all the prep work for filling the grain and chips and gaps is just as much work as patching the holes in the drywall. I didn’t even think about the grain showing after painting and it won’t be perfectly smooth as I thought. I appreciate all the answers, it really helped me a lot!

Normally I like wood paneling but that's ugly. I agree that removing it is the best choice.