Before there are any attempts to answer your questions, how likely are you to actually collect on any money you request? Are they wealthy? Do you know if they just inherited a large sum of money? If you can't answer those questions then keep their full deposit (With a list of items so they cannot try to come back for it) and let them break the lease early so you can fix it up and get better tenants. Also, you should fix everything including the holes so that you can charge the most rent to the next tenant. Chasing after a tenant with no money is the worst way to spend your time.
I’d imagine the answer to all of your questions is in your lease agreement.
There should be a section for penalties associated with breaching contract. If your entitled to some money and you literally need it to bring that unit back up to standard condition, for sure charge them. I think nail holes and what not are considered normal wear and tear and should not be a line item on your back charge to them.
When the tenant leaves take photos of everything and video walk thru the unit. Save this for proof. A tenant of 7 years I would let break the lease with no fee. I would not charge for nail holes and painting as this is wear and tear. I would give the walls a good cleaning and see what they look like. Most likely you will need to repaint the entire place. Review your lease to see what you can charge them for. You should have this spelled out, if not update your lease. This should include fees as well. Items truly damaged and or with holes needs to be replaced and fee charged. Keep all receipts of work for proof. Fix the water leak. Now would be time to rehab the unit.
I agree with @Jim Adrian on this...since they are long time tenants and since it sounds like you do not have an early termination clause in your lease...you can let them go without a penalty fee. I work at an apartment complex and we require one full-months rent as a penalty as well as 60 day notice. Best of luck!
Your lease (and state landlord tenant laws) will tell you what you can charge for early lease termination. Most will find 1-month to be most reasonable, though some states expect you to make good effort in finding a tenant before then and refunding the difference.
For repairs, after 7 years, I find it hard to justify charging for repainting. You’ll probably need to at least touch up paint outside of the security deposit since it’s likely ‘normal wear’.
For picture hook holes... same thing. Most people will hand pictures. If there are 5 pictures along the staircase, it’ll be hard to justify. If there are 30... maybe.
Picture yourself standing in front of a judge explaining why the tenant should pay for that repair. Would the judge laugh at you, or agree? (Not that it would get to that point, but I’d want him to easily agree with me on repairs (vs wear))
I believe they have The money to fix the issues Within reason. The contract states they are liable for the entire contract amount and there is no buy out clause.