Need a floor plan and more pictures. Is that a pass through to the kitchen or is it suitable for seating?

Seeing all the wood element at upper left -- what if fp wall were 'wrapped' in some material, maybe wood - up to the horizontal line of tv's top/ same as ceiling.

Would look "neater" to me if material were to cover to the left of current 'surround' -- with art or other above.

Do you have any pics without that sofa in it? Maybe you can relocate the fireplace?

Provide more images of the room so we can help you with this situation.

Yes, it is a pass through to the kitchen. there is just a small ledge on the pass through but I am wondering if it would be good to build out a small breakfast bar there. I also am wondering about putting a small table and chairs set in the area in front of the fireplace or if I should just do a small seating group there. The entire room has several awkward elements due to the walkway to the porch, the large heating unit under the window, and the fireplace. I am trying to post another picture but am having trouble doing so.

A basic idea: if you find 1 large canvas art, or 2 rectangular pieces of art - maybe that'd help. Have you tried that?

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How many people at the same time will be using that space for watching TV, or for eating at the table?

For my family, we're not big on sitting on taller stools so that cutout would not be useful for us. I would be tempted to put the TV with the back facing the cut-out, with or without closing is up.

You haven't asked I know -

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Is that a windowless kitchen? Don't let their furniture arrangement stump you. Think outside the box. Could your table go at the window with the heating unit? How does that unit work? Lots of people build something like a "topper" for radiators; would that work here to convert the heater to more of a buffet? Then place TV on the opposite wall with a four chair grouping out in front of the porch doors. Swivels would work well. Widen the bar at the kitchen for comfy stools. Ignore the fireplace this first year and see if you really need/want it. Maybe removal is a better option for you. Maybe later on, something like this would work for you on that other wall and the current fireplace could be eliminated.

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I had meant something like this for your fp, adding some material to enlarge it, raise it higher?

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Interesting art piece -

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For fp: stone probably 'veneer' called what? nice with smudgey watercolor soft -

and over it, a rectangular piece could be tall and "match the scale" of windows, etc.. high up in the room.

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