AOKAT: It's either on the Home Decorating Forum or the Organization forum that someone posted threads about mudrooms. I loved seeing all the pics of everyone's different versions--might be worth a search and viewing to get more ideas. I have had a mudroom for the past 10 years and I seriously could not live without it--it is just about as hard-working of a room as my kitchen. Since you have a few flexible spaces, you really don't have to choose between the two. I think it's just a matter of how you split up that space. As I questioned above, the storage area at the bottom of the stairs might be a good mudroom, but Buehl brings up a good point about shlepping things up and down--my office was downstairs and it started to drive me nuts after a while. The kids will run down and get their notebooks for homework, then they'll run back upstairs, then they will run down for shoes to go out the back door...it might be a lot of running around. One suggestion by plllog makes some sense: the storage area below can be a large coat closet/shoe and boot closet. The upstairs is more of a cubby area for other junk. You could set this up so that things are not totally "permanent" and didn't cost too much by fitting the downstairs storage with cheap benches and coat hooks. Upstairs, make room for another mudroom and set up an area that the kids can put their backpacks, etc. As Mahlgold mentioned, things tend to come into the main area....but maybe they can shed their dirty shoes and wet jackets downstairs first. Since you have never lived in the house and your kids are still small, you probably have a hard time envisioning the "flow". It's hard to both plan for and predict how it all will work. But, if you don't go out and buy built-ins and yet you leave spaces for them for a future time, you give yourself some flexibility for 6 months or a year after you move in, and you can match what will best work for you and your family. You have a wonderful amount of space and it's great you're thinking about this!

we took out the back 6-8 inches of the front entry closet and made a "can pantry" out of it it opens into the kitchen, we have cabinet doors on it and we have many shelves ranging from 8 inches in height to about 15 inches and the depth is about 6 inches, it's a great pantry. on the entry side we have the regular closet door and instead of a rod for hanging coats, we have hooks, two rows of hooks in some places we have the normal shelf, a bit higher than normal in the closet works great for us......

Half baths are generally useful for guests and for use by families with more members than bathrooms. If your situation is neither, the transformation into a closet makes more sense. Having liven ib homes with minimal closet space---and building a house with extra closet space(and filling those)---the closet space was much more useful. However, to properly convert and at the same time make it possible for a future owner to convert back, three things need to be done. The three water feed lines need to be permanently capped(soldering caps on the lines) to prevent future leaking. Reusing those lines is a matter of cutting off the caps and installing new lines/shutoff valves. If the lines are left above/out of the floor/wall, a cover needs to be fabricated to protect the ends. The toilet waste line needs to be plugged and covered. Third, leave a note on a wall with the information about the conversion so a future owner can be aware.

I agree with Little Bug that if you have to actually go into the mud room to use it, no one will (at least no one in my family would). I'm not a pro but can we see the rest of the space? I am assuming the door in your picture is the one that leads to the garage. I think it would work best if the area is one big space (which means removing the door) than treating it as a separate room.