She was quiet and ignored my reminder on rent/ deposit until I served the 2nd 3 day notice on Sunday.She was fuming and claimed the notice was illegal and demanded a discounted rent because the condition is so bad (not clean upon move in, leakage from fridge, kitchen faucet leakage that he had to fix herself blah blah).

Tenant is very clean and does not bother me with little things BUT he smokes right outside front door even though it is in his lease that "smoking is not permitted on premises".Question: Is there a way to have him sign MY lease but only as M2M? 

Fannie Mae’s HomeStyle Energy Program is a mortgage option that allows borrowers to finance clean energy upgrades equal to up to 15 percent of the as-completed appraised value of the home.

We cleaned the place from top to bottom and it was "move in ready" per his words.The rest of the story is a little longer than necassary so anyway, he is trying to keep our security deposit 100% citing our lease agreement. 

Besides the obvious that your place could get gutted and cleaned out of anything valuable, there are a number of scams where your listing gets posted to Craigslist, someone else gets access (IE via your lockbox) and "rents" your property to unsuspecting victims.If you do collect fees electronically, don't use Paypal.

or only cleaning and damage expenses? 

He also called the Department of Environmental Protection because these folks have trash and debris all over their lot, he said the DEP is making them clean it up.  

While you are working on cleaning up you debt, you could also work on improving your knowledge in Real Estate and get familiar with all the other Real Estate investment strategies, Learn how to analyze random deals, ... etc.

There aren't really any formulas for this, your best bet might be to look at the pictures in rental comps other than that I would estimate the difference to be about $100 in rent for every $1000 of rental value if everything in a non-updated unit is clean, usable and looks reasonably nice.

If you yearn for the "fresh" air of the outdoors, build a gazebo in your backyard and keep you indoor air clean.