Here's the deal: You don't need to withdraw and return the current security deposit just to collect the additional $100.

Yes, you can deduct the 8 days rent from the security deposit.

We did give 50k deposit up front which he says he will use towards finishing up.

Now, over a year and a half later, he sent a certified letter last week demanding the security deposit or legal action within 30 days.Please advise. 

The pet fee or deposit for the move in of 2 cats (you did charge one, I hope) should have just about covered the extra anyway.

If it's not a holiday, I would say, "No, the deposit remains in place until your lease ends."

Quote from @Phillip Austin: There are two alternatives to a security deposit, which I speak about in my book.

After searching more, I found a few BP post where people seemed to have one account for all deposits, and keep only deposits in there.

I’m drawn to the endless opportunities the Texas market offers and am committed to building my knowledge and skills to make smart, strategic investments.Right now, I’m focused on understanding the basics—everything from evaluating properties and navigating financing to learning about the unique aspects of the Texas real estate market.

Four acres for a young family sounds like the stuff of cherished memories and endless possibilities.