State law allows landlords to make deductions from a security deposit for certain items including: unpaid rent or bills; "reasonable cleaning charges to bring the unit to the same level of cleanliness as at the inception of tenancy; failure by the tenant to restore, replace or return personal property or appurtenances; and/or damage to the unit caused by the tenant or the tenant's guest that exceeds normal wear and tear. 

All the items above are fairly clean cut.  However, there is no precise definition of "normal wear and tear" in the law, nor are there any published court decisions in California that define it.

Court decisions in the District of Columbia and New York have only defined normal wear and tear as when the tenant does nothing more than come and go and perform acts usually incident to an ordinary way of life.  The only deduction one can make from this definition is that "normal wear and tear" is what a judge says it is. 

Several factors should be considered when determining to withhold all or part of a tenant's deposit for damage that exceeds normal wear and tear.  

All tenancies should begin and end without dirt, grime, grease or other removable soil.  This is easy to determine.  The landlords should do a thorough cleaning prior to the tenant moving in and the tenant, likewise, should do a thorough cleaning before they move out.  Also, any obvious repairs such as broken windows or holes in walls should be replaced or repaired prior to the tenant taking possession.

Obviously, some items may not be in perfect condition, but may not be cost-efficient to replace, such as a refrigerator that works perfectly fine, but has a scratch on the outside left by a previous tenant, or a countertop that has a small chip in it.

These items should be recorded in detail in a move-in walk through conducted by the landlord and tenant to help circumvent any disagreements at the end of the tenancy. 

When considering destruction above and beyond normal wear and tear, I generally factor in the life expectancy of the item in question.  For example, if a tenant moves out after one year, I should not have to completely repaint the whole apartment.  However, if the tenant was there for five years, a full paint job isn't out of question.  Likewise, if I installed new carpet three years ago, I shouldn't have to replace it, but if it was 10 years ago, I probably should. There are several published life expectancy timelines for home components, such as this one here.

Based on my experience as a property manager, these guidelines seem fair, though in my experience, the old adage "they don't make it like they used to" rings true.  Many of us have refrigerators for 20 years that work just fine, while we may have replaced one for our tenants five years ago that has ceased working.  This may not be due to the tenant's usage, but rather manufacturer quality. 

State law is definitely on the tenants' side when it comes to penalties for security deposit disputes.  While the tenant has nothing to lose when bringing a lawsuit for a deposit dispute, the landlord may be liable for penalties of up to twice the amount of the deposit, in addition to actual damages, for bad faith retention of a security deposit.

That said, my advice to landlords is to be conservative when making deductions from a tenant's security deposit.  Accept that by having a vacant unit, you are escaping a possibly lower than market rent due to Rent Control, and you have the opportunity to make improvements to maximize the rent potential.  Also, a conservative refund may save you time and money that may be spent fighting any disputes.