I'm wondering if the space between the kitchen and living room would make the better dining area ... though that leaves the question of what to do with the sunken room.

What type of spaces do you need? Do you need a second seating area? Do you need an office/study? Do you need a library? Game room? More kitchen storage?

I'd make the sunken room a study or library.

I agree with the previous comment about having the dining room between the kitchen and living room, since it is on the same level and wouldn’t need to use the stairs to access it. More information about your stage in life and needs would be needed to determine what the sunken room would be best used for. If you are going to have kids, it would be perfect as a toy room for the kids - viewable from the kitchen yet able to keep the toys corraled. Then, it could transition to the video game room and a hangout room for teens. If the family is past the kids stage, and closer to retirement, it could be used for hobbies, like a sewing or art room. Other options exist if you want to wall off that room. If you live in a snowy climate, you might want to use it as a mudroom and/or laundry. If the owners work from home, it could be a home office. For me, I’d use it as a yoga room/gym.

IMO that space much better for the DR and I agree the DR space would be much better as an office or a piano room

Thank you allcso much I wantedcto bringvthe dining room up, but I was concerned about flow as you came down the stairs. i have a sixteen year-old and a twelve year-old. so I like the idea of using the sunken area to create a fun space that will work for cousins and friends. seating, plus seplacecto keep snacks and juices so that din’t habe to troop through the kitchen when I am cooking will also put a set up down there for video gaming. like axden, but without being walled off. I prefer not to wall it off from the kitchen because letting the light in is important to me there is also a view to the lake. thank you so much!!!