Can we withhold the damage from our renters deposit?

As the settlement statement current is, I am withholding $5K as a security deposit until the seller vacates in 30-60 days with a post-closing occupancy agreement, before I knew of the problem tenant contesting a pretty clear-cut eviction process for non-payment. 

I would maintain a little more for reserves withholding (Vacancy, CapEx, Repair/Maintenance).  

I was able to pay my mortgage  off when my mortgage loan when it was about 10 years old with a Home Improvement loan at that time for 1.99% I have learned recently that the Bankers are trained to withhold anything that might be considered negative from you. 

I don't think a tenant in any state can withhold rent demanding you repaint a wall, unless it is correcting damage caused by something outside the tenants control.

In this scenario, it comes down to me paying $4k worth of deductible or $2k worth of deductible to get the hail damage fixed; that is if I prevail with holding them to their quote.TL;DRI switched insurance companies and the agent changed deductible from the $1k I was quoted to $2k on three of my four rental properties, then hail damage occurred before we could discuss this un-prompted change.

Is the 15 percent withholding Tax refunded the same year ?

Every year you have a re-inspection and inspectors can nitpick 2 fails in a row, which could be because your tenant wasn't there to let them in and they with hold your rent until resolved. 

I believe this damage is due to tenant negligence and am considering withholding a portion of the security deposit.

My only advice is no matter what the 401k custodian says make sure you consult with a tax professional so you withhold the proper amount.