Is my landlord breaking the law with my security deposit deductions?

You are mostly, not quite right. The landlord has no right to use *your* money to rehab, prep, etc. the home for sale; that is something he has to pay for. What he can do is use the security deposit to repair any damage you did that exceeds normal "wear and tear" for (in your case) a 3.5 year tenancy, such as if you chipped countertops, scratched floors, left unusually many or large holes in the walls from hanging things, ruined carpet with pet urine or red wine, etc. If you did damage in excess of normal wear and tear, he can use the deposit to repair it even if in the process the home ends up in better shape then when you first rented. (For example: say you had children who played sports in the house and in the process, they scratched the wooden floor; the landlord can have it refinished even though doing so will probably make it nicer then it was when you rented.)
As for cleaning: the landlord can only use money for out-of-pocket cleaning expenses (e.g amounts paid to contrators, workers, etc.) for cleaning exceeding normal end of tenancy cleaning, such as if you had a pet cat and he has to bring in professional carpet cleaners to get rid of a cat odor, or if never cleaned your shower and he has to bring in a cleaning company to get rid of stubborn mold, or you left so much or so heavy belongings behind that he needed to hire a clean-out crew.
Except as per the above, he cannot use your money to rehab or stage or market, etc. his house. If he does and wrongfully withholds money from you, you could sue him (e.g. in small claims court) to get the wrongfully withheld amounts back.