I have decided to sell the rental property to diversify my portfolio, and have set up an LLC in my name only with its own new banking accounts that the funds from the sale are being deposited into as I type.

Considering that the unit was in good condition, I didn't consider increasing the security deposit. 

I collected a 7k option deposit from them and my agreement with the seller was for 1k option deposit. now I need to know how do I close this deal and collect the difference I'm owed. do I assign it back to the seller?

We have gutted the entire place, and because of the age (1989), are replacing every valve, electrical outlet, etc.Anyway, that's my sad sorry, and as much as I wish they would pay me for all the repairs I don't expect to see any money except that $600 deposit (already spent all of that on the dumpster).

He requested his security deposit back although his ex-wife still live in the house.

The TREC is good for getting the property, but you'll need it assignable and understand the timing/deposits, etc.The actual assignment is a custom form, I've never seen a promulgated form for that

Meaning, you can have all your deposits in there. 

If you’re still in the inspection phase I’d recommend getting an estimate before you’re locked in with your deposit if you still can.

But that doesn't mean that they won't ask for a hefty deposit and give you a limited amount of time to sell it.

You can give them deposit slips with their address on it so they can despot directly into your account.