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This is a question without a wrong answer, but instead you need to choose one and support it. Below is a strong support for the setting being ironic.
The narrator begins the story by making a claim for his sanity. He is trying to prove that he is not deranged or mad, but he simply suffers from some illness that is not a full psychosis.
Of course, as his comments and narrative continue, we find out that he is completely psychopathic. The SETTING of the story he chooses to tell in order to CLAIM HE IS SANE, is a the home where he murdered an old man (father, uncle? ) in his sleep for having a weird eye, and proceeds to drain his blood into a tub, chop up the body, and hide the parts under the floor.
Clearly, if someone is trying to prove their sanity, they would not use a story with a setting of the place they commited a heinous murder. Hence- irony.
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