My wife and I were renting in oceanside, Ca. we were getting our final inspection on the house and the said we owe the $650 for the carpet because of a pet accident on the carpet. We heard the if you rental a place for more than a year in CA, that the landlord has to replace the carpet. Is this true?

No. Carpets are more durable then 1 year. At the top of this forum is a sticky with links to state laws, you can check them out there. If you can I would have an independent check whether the carpet needed full replacement.