While it really is a preference thing, I personally don't care for seeing a lot of empty wall space between the rod and top of window.

However, in your case, I would mount them in the same place as your living room windows, since you can see all the windows from either room.

I personally don't like the look of the step down room's treatment being farther down. Doesn't look quite right.

Thank you. The curtains for the living room are 4 inches below the molding. I have seen several pictures where the rods are directly below the molding. Is that a trend?

Is that a trend? Sort of. It's that "high and wide" thing going around. : ) I used to make custom, so I always felt everyone's case is different and it also depends on what someone likes.

If you like that look, then it's fine and nothing wrong with it.

If you like where it is now, and I do, that's fine too.

does anyone know how to change the picture I sent to simulate how a rod would look if it's right under the molding or if the rod is lower down?

You could try the Edit function or it might be easier to just add the new pics to this thread.