Could you post a measured plan of the house? How many bedrooms does it have besides the one you are thinking of incorporating into your kitchen? Certainly the loss of a bedroom could impact resale, but so could the lack of any place to dine. More information, especially a floor plan of the entire first floor of your home, would help!

This is a rough drawing of the general layout. The wall between the kitchen and the living room is going to be completely open and and the staircase is behind the wall on the right hand side of the kitchen.

I would not give up a bedroom.

rethink the living space, Needs vs wants.

We are renovating a 1948 Cape cod style farmhouse

Why? What do you want out of the renovation?

What is the WDD space?

What's upstairs?

Where is the entrance? A measured and dimensioned plan should include doors and windows, and be drawn accurately.

Have you considered adding on?

The house had been neglected over the years and was set to be torn down. My husband and I opted to try and save it. It originally had 2 bedrooms, one downstairs and the 1 upstairs upstairs bathroom.
There is a large bonus living space downstairs that is 15 x 25 and wanted to utilize the additional bonus space to add-on the 2 additional bedrooms and make it more family friendly. The entrance to the house is where the living room is at and you have a straight view through living into the kitchen area. The laundry room is being moved behind the main bathroom downstairs.

I would absolutely convert that bedroom to living/dining space. It doesn't really make sense to have 4 bedrooms without a reasonable space for that many residents to gather at a dining table. At 13' x 13' a kitchen island might work, but you still need a dining space. I would put the dining table in the current living room area, living room in the newly opened bedroom.

Can you give us a slightly more detailed floorplan, showing doors and halls (surely that lower right bedroom doesn't open up directly into another bedroom?). There might be some other ways to improve the first floor that people will notice if we get a fuller picture.

If you have enough bedrooms and no where to eat, I can only see a dining area as an advantage. Consider placing a banquette along the wall on left (improves flow) near kitchen (better access/functionality) and the living room will be better positioned and accommodating.

Seriously consider getting a local competent design professional involved.

Is this a flip or is it for yourself?

It is our neighbor's house and we plan on keeping it for our children.

We are working with an architect, but we need to decide whether we keep it as a bedroom and work with the current layout as it is or if we convert it to a dining room before we finalize drafting

What does "keeping it for your children" mean? Keeping it as a guest house where multiple families might stay for a holiday visit? Or keeping it as a house where one adult child and family might move in? 4 bedrooms and no dining space is a boarding house--do that if you want a space where all adult children and their children sleep, but come over to your house for meals. Convert one bedroom to a dining room if you want one of your children to move into the house as a permanent residence. If you need more bedrooms, you can always convert some space in the attic or basement (not sure which one that staircase leads to).

We plan to rehab it, rent it for a year or 2 until they are out of college and move back home. Another option my husband considered was utilizing it as a hybrid space - so opening it as a dining space, ans maybe utilizing a barn door to close the door off if it needs to be used as a bedroom down the road if the dining room doesn't prove useful.

Ok, adult siblings sharing a house. That's tricky. How many years do you think they are really going to be happy doing that? Eventually this house is either going to be a single-family house (for one of your children, or for a family you sell it to). Open the bedroom completely so you have a unified living/dining space that can be arranged flexibly. You can always close it back up--putting up new walls is easier than taking them down. Or again, put new bedrooms in the attic.

Is there space to install pocket doors in the widened opening so the room can be used as living space now but converted back to a bedroom if needed in the future?

It really depends on which you need more - the dining space or a bedroom. Whichever is most needed would be the thing to do.

It seems you will still have a three bedroom home if you give the one up so since you want the dedicated space go for it.

IMO if giving it to the kids let them figure it out. For me no dining room would be horrible so if you need one make the opening big enough to open up visually but able to be closed off with some type of door I would do pocket doors .