Water damage in living room

[Pavan Krishna]

I'm new to BiggerPockets and this is my first post.  I'm new to managing rental properties directly as well.  I can benefit from the collective expertise of this forum.

After 5 years, my tenant in vacated my home in California. There was water damage on the living room floor. Tenants mentioned that their washing the rug might have caused the water damage.  This is not due to any water pipe leaks as there are no water pipes anywhere near living room floor.  I'm not able to find the same material to repair the floor.  So, I need to replace the floor.  I shared this info with the ex-tenant.  They understand the situation.

Now, I've 3 options.  1) Deduct the entire floor replacement cost from the security deposit.  2) Split the cost with the tenant.  3) Do not deduct anything from the security deposit and pay for the cost out of my pocket.

Which option do you recommend?  Are there any legal issues I need to be aware of?  Any info/help is appreciated.