As a side note, we need to repaint in the spring as the paint on the wood siding is in rough shape (roughly $4000-4500 in all).

Wow, those pics of the repainted countertops actually look pretty good.

We repainted it this weekend and are having the carpets professionally cleaned.Policies - I haven't even got to the point of talking about policies.  

Its hard to tell on the walls as it seems they tried to repaint them the same color.

If the tenants do, charge them to repair the damage and repaint the wall. 

I'd rather have worst case scenario like replacing the entire carpet or floor or roof, repainting the entire outside, etc... but how much do those usually cost?

Also repainting interior walls and cleaning carpets after 5 years is generally considered  "normal wear and tear".

The rent is still about $100 below market but the place is rough and would require a lot of rehab.They agreed to the amount quickly but then asked me to repaint walls and re carpet the flooring if they sign a new year-long lease. 

If you've damaged some of the paint, you'll pay to repaint the entire place.

See if you can just repaint the cabinets and install new countertop.