Generally, the "Repair and Deduct Statute" provision only applies when conditions exist that "materially endanger the health and safety" of the tenants. If the tenant made repairs and MAINTENANCE of the property that was not 'health and safety' related, they were for his benefit and not required to be reimbursed.
Application of this statute is not just at the discretion or whim of the tenant, there are very specific conditions that have to be met in order for the statute to apply:
Here is a part of the text of the statute:
"Section 127L. When violations of the standards of fitness for human habitation as established in the state sanitary code, or of other applicable laws, ordinances, by-laws, rules or regulations, may endanger or materially impair the health, safety or well-being of a tenant of residential premises and are so certified by the board of health or local code enforcement agency, or in the cities of Boston, Worcester and Cambridge by the commissioner of housing inspection, or by a court of law, and if the owner or his agent has been notified in writing of the existence of the violations and has failed to begin all necessary repairs or to contract in writing with a third party for such repairs within five days after such notice, and to substantially complete all necessary repairs within fourteen days after such notice, unless a board of health, local code enforcement agency or court has ordered that said violations be corrected within a shorter period, in which case said period shall govern, the tenant or tenants may repair or have repaired the defects or conditions constituting the violations. The tenant or tenants may subsequently deduct from any rent which may subsequently become due, subject to the provisions of the following paragraph, an amount necessary to pay for such repairs. The tenant or tenants may, alternatively in such cases, treat the lease or rental agreement as abrogated, pay only the fair value of their use and occupation and vacate the premises within a reasonable time."
Full text can be viewed at:
http://www.state.ma.us/legis/laws/mgl/111-127L.htm
If the tenant didn't get a declaration of conditions AND you didn't receive notice of same in writing AND if you failed in starting or completing the repairs, then the tenant MIGHT be able to deduct the cost from the rent. And based on your posts, it doesn't sound like the 'upgrades and maintenance' performed would qualify (removed carpet/sanded floors, etc.). This means NO RENT ADJUSTMENT.
Also, one other thing to consider... if he is claiming costs over and above materials, he could be in violation of local or state Contractor Licensing requirements (M.G.L. - Chapter 142A, Section 4; Regulation of Home Improvement Contractors).
As for Small Claims court limit, in Massachusetts the limit appears to be a measly $2,000.00.
http://www.state.ma.us/consumer/Pubs/smclaim.htm