Storage, storage, and more storage. Think about how you want to use the space, and plan plenty of closets to accommodate all the things required. Otherwise, you will have a job on your hands to keep it from getting junky. So here is more than you wanted to know about what we did: When we did our basement, which also included a long one-car garage along half of one side, we put in a u-shaped light shop space (no power tools except drills and the like) at the end with a deep sink in the center of the U, one side dedicated to plant care and flower arranging, peg board (painted white) lining the walls up to 6'8", and a deep shelf on ordinary white hardware store brackets above that. I recycled two L-shaped wooden countertops that were cast-offs from another project, stained them, and finished them with spar varnish. I designed the supporting structure (painted dark gray) to accommodate three mobile storage basket units that I already had. I painted the wall over the sink (no pegboard there) with chalkboard paint, which was great for jotting down measurements and things to go on the shopping list. We used plain old rectangular florescent tube fixtures in the ceiling, which gave exactly the kind of clean light we needed, and a couple of boxes of peel and stick vinyl tiles on the concrete floor. The short wall of the house which had the garage door and the entry door from the driveway was our foul-weather entrance, and had a fireplace in it, so I allocated half that space to a warm sitting area, and put a trestle table to serve as a desk behind the small sofa that faced the fireplace. I dealt with the high little windows along the long wall (with a lovely view of the bottoms of the boxwoods along the front of the house) like this: Behind that area, I created a hallway to the back space by building a cedar closet on one side, which ran under the staircase, and a long deep closet with three doors in the wall and deep shelves lining the whole thing on the other. Where the cedar closet ended, under the low part of the stairs, I built in a niche for a long 2-drawer lateral file cabinet. We had the stairs rebuilt to create a 3 x 3 landing at the 3rd stair up, so we could turn the bottom stairs to face into that hall, and create an easier and more attractive entry to upstairs. Beyond that hallway was enough space for a pantry closet and a wine closet along the short wall, and a chest of drawers perpendicular to that. Beyond the stairway was the door to a new laundry room and a walled-off area for the HVAC and hot water tank (with louvered doors), and between the laundry room and the back wall of the garage workspace, we put in a big bathroom with changing space for anyone using the pool, or coming in from the garden all covered with muck. We did the bathroom very economically - the things we spent any money on were a Venetian marble shower stall and long countertop with an integral sink. Instead of a vanity, we mirrored the wall and attached a simple framework with a stained birch plywood fascia along the wall to support the countertop, built a 10" high plinth along the floor under it, and put big baskets of towels and washing and sun supplies on it. Then we ran a 2x10 along the wall opposite the shower with many hooks for damp towels and bathing suits, and added a simple garden bench. I loved it. It made my too-big house completely manageable.

I have a split-level house and there is a bathroom right at the top of the steps already. Active radon mitigation was already put in when I purchased the house. Those two checked off already.

Maybe try your sofa turned toward the center of the room. Keep it away from the wall. Keep the location of the two chairs on the other side of the fireplace but pull them toward the center of the room. Also pull them away from the wall. Will your rug fit in front of the fireplace if it is turned. Try that and then we will discuss the TV location. I also have a wood burning center fileplace with a TV in the room. We use the fireplace quite a bit so I know they can be messy but are totally worth it,

To clarify my question about wall height & direction of window -my house has a bonus room over a 3 car garage so it’s a good sized room - @ 380 sq ft - & also with sloped ceilings down the long sides. The wall height at bottom of sloped ceilings is 5’ & it’s 8’ in wide center of room. The 6’ wide window faces West & since it’s over the driveway, there is reflected heat from the West facing driveway to the 6’ wide window that affects temperature in the room. We do have a ceiling fan because of that as well as blinds plus a Roman shade mounted at ceiling height & with a solar backing on the window. We also have AC. The 5’ height of side walls does allow for seating along walls & no problem with headroom. It also allows for our very large TV that sits on a regular height console to be placed on the long wall across from the sofa. TV sits in middle of console top so height not a problem. We have a loveseat in front of window & a great table for projects & games sitting in a corner We do have a generous closet with a regular door that is built out from the side wall & has a half wall extension that continues @3’ from the closet & which has the stairs on the other side. No bathroom in the room & also no door at top of stairs. The room is open at top of stairs with the half wall - stairs don’t ’load’ directly into room as yours do. Ours are a side entry. We have had guests sleep there on air beds - 3 boys. Likely not a good solution for your MIL. Murphy bed might be a solution for you to place on left wall next to door but quite an expense & not sure about safety with the spring loaded bed & kids playing up there. Maybe a trundle bed set up used as a day bed? Sofa sleepers are notorious for lack of comfort but may be the only choice if you don’t want the room looking like a bedroom. Lots of info but maybe will spark some ideas for you.