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Well to be honest, I would talk to him about his reasonings. Get to know why he does that rather than immediately cast him out for being racist (which is what a lot od people do these days.. >_>).
If he is into the KKK it is definitely a no go. They are domestic terrorist just like their rivals the Black panthers. Both are terrorist groups and need to be systematically destroyed in the same fashion ISIS is being eliminated.
I would never wear a confederate flag, but I see why people do it. It is less about what it stands for more about sticking it to social justice warriors. Again, not my thing. I do see why people do it. It was about history and roots. Now it about sticking to the left.
That being said, I would never do it. Nor do I feel any attachment to the south. The way I see it is they killed Americans troops. Nothing more and nothing less.
The fact he is both sporting a confederate flag and KKK is a good sign he is what you would call a white supremacist also know as domestic terrorist. You do not need that in your life...