|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington, D.C. 20549            
|                                  
|Form 10-KSB                       

(Mark One)

[X]

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



|                                           
|-------------------------------------------
|For the fiscal year ended December 31, 2007



[ ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



|                                                    
|----------------------------------------------------
|For the transition period from _________to _________
|                                                    
|Commission file number 0-14530                      
|                                                    
|DAVIDSON INCOME REAL ESTATE, L.P.                   
|(Name of small business issuer in its charter)      



|                                |                     
|------------------------------- | --------------------
|Delaware                        | 62-1242144          
|(State or other jurisdiction of | (I.R.S. Employer    
|incorporation or organization)  | (Identification No.)



|                                                              
|--------------------------------------------------------------
|55 Beattie Place, PO Box 1089                                 
|Greenville, South Carolina 29602                              
|(Address of principal executive offices)                      
|                                                              
|Issuer's telephone number    (864) 239-1000                   
|                                                              
|Securities registered under Section 12(b) of the Exchange Act:
|                                                              
|None                                                          
|                                                              
|Securities registered under Section 12(g) of the Exchange Act:
|                                                              
|Units of Limited Partnership                                  
|(Title of class)                                              



Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ]



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesX No___



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation  S-B contained in this form, and no disclosure will be contained, to the best of the Partnership's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  [X]



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [ ]  No[X]



State issuer's revenues for its most recent fiscal year.  $3,295,000



State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests as of December 31, 2007.  No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined.



DOCUMENTS INCORPORATED BY REFERENCE

None



Transitional Small Business Disclosure Format (Check one):  Yes [ ]; No [X]











FORWARD-LOOKING STATEMENTS



The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements in certain circumstances. Certain information included in this Report contains or may contain information that is forward-looking, including, without limitation, statements regarding the effect of redevelopments, the Partnerships future financial performance, including the Partnerships ability to maintain current or meet projected occupancy and rent levels, and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and, in addition, will be affected by a variety of risks and factors that are beyond the Partnerships control including, without limitation: natural disasters such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect the Partnerships properties and interpretations of those regulations; the competitive environment in which the Partnership operates; financing risks, including the risk that the Partnerships cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for tenants in such markets; insurance risks; development risks; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the Partnership.   Readers should carefully review the Partnerships consolidated financial statements and the notes thereto, as well as the section entitled Risk Factors described in Item 1 of this Annual Report and the other documents the Partnership files from time to time with the Securities and Exchange Commission.



PART I



Item 1.

Description of Business



Davidson Income Real Estate, L.P. (the "Partnership" or "Registrant") is a Delaware limited partnership organized in April 1985.  The general partners of the Partnership are Davidson Diversified Properties, Inc., a Tennessee corporation ("Managing General Partner"), David W. Talley and James T. Gunn (collectively, "Individual General Partners") (collectively, the "General Partners").  The Partnership is engaged in the business of operating and holding real estate properties for investment. The Managing General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust.  The Partnership Agreement provides that the Partnership is to terminate on December 31, 2010, unless terminated prior to such date.



The offering of the Partnership's limited partnership units ("Units") commenced on July 26, 1985, and terminated on May 30, 1986.  The Partnership received gross proceeds from the offering of $26,776,000 and net proceeds of $25,700,160.  All of the net proceeds of the offering were invested in four residential properties, one of which was sold in 2003 and one of which was sold in June 2007, and in a 17.5% joint venture interest which owns one residential property.  See "Item 2. Description of Properties" for a description of the Partnership's properties.



The Partnership has no employees.  Management and administrative services are provided by the Managing General Partner and by agents retained by the Managing General Partner. An affiliate of the Managing General Partner provides property management services at the Partnerships properties.







Risk Factors



The risk factors noted in this section and other factors noted throughout this Report describe certain risks and uncertainties that could cause the Partnerships actual results to differ materially from those contained in any forward-looking statement.



Failure to generate sufficient net operating income may limit the Partnerships ability to pay distributions.



The Partnerships ability to make distributions to its investors depends on its ability to generate net operating income in excess of required debt payments and capital expenditure requirements. Net operating income may be adversely affected by events or conditions beyond the Partnerships control, including:



·

the general economic climate;

·

competition from other apartment communities and other housing options;

·

local conditions, such as loss of jobs or an increase in the supply of apartments, that might adversely affect apartment occupancy or rental rates;

·

changes in governmental regulations and the related cost of compliance;

·

increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents;

·

changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multifamily housing; and

·

changes in interest rates and the availability of financing.



The Partnerships existing and future debt financing could render it unable to operate, result in foreclosure on its properties or prevent it from making distributions on its equity.



The Partnerships strategy is generally to incur debt to increase the return on its equity while maintaining acceptable interest coverage ratios. Payments of principal and interest may leave the Partnership with insufficient cash resources to operate its properties or pay distributions.  The Partnership is also subject to the risk that its cash flow from operations will be insufficient to make required payments of principal and interest, and the risk that existing indebtedness may not be refinanced or that the terms of any refinancing will not be as favorable as the terms of existing indebtedness. If the Partnership fails to make required payments of principal and interest on secured debt, its lenders could foreclose on the properties securing such debt, which would result in loss of income and asset value to the Partnership.



Competition could limit the Partnerships ability to lease apartments or increase or maintain rents.



The Partnerships apartment properties compete for residents with other housing alternatives, including other rental apartments, condominiums and single-family homes that are available for rent, as well as new and existing condominiums and single-family homes for sale. Competitive residential housing in such market area could adversely affect the Partnerships ability to lease apartments and to increase or maintain rental rates.



Laws benefiting disabled persons may result in the Partnerships incurrence of unanticipated expenses.



Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain Federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990, to be accessible to the handicapped. These and other Federal, state and local laws may require modifications to the Partnerships properties, or restrict renovations of the properties. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although the Partnership believes that its properties are substantially in compliance with present requirements, the Partnership may incur unanticipated expenses to comply with the ADA and the FHAA.



Potential liability or other expenditures associated with potential environmental contamination may be costly.



Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of properties, the Partnership could potentially be liable for environmental liabilities or costs associated with its properties.



Moisture infiltration and resulting mold remediation may be costly.



The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements.  The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure.  Affiliates of the Managing General Partner have implemented policies, procedures, third-party audits and training and the Managing General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents.  To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions.  Because the law regarding mold is unsettled and subject to change the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnerships consolidated financial condition or results of operations.



A further description of the Partnership's business is included in "Item 6. Management's Discussion and Analysis or Plan of Operation" included in this Form 10-KSB.













Item 2.

Description of Properties



The following table sets forth the Partnership's investments in properties:



|                            |          |                            |          
|--------------------------- | -------- | -------------------------- | ---------
|                            | Date of  |                            |          
|Property                    | Purchase | Type of Ownership          | Use      
|                            |          |                            |          
|Bexley House Apartments     | 09/30/86 | Fee ownership subject to   | Apartment
|Columbus, Ohio              |          | first mortgage (1)         | 64 units 
|                            |          |                            |          
|Covington Pointe Apartments | 03/10/87 | Fee ownership subject to   | Apartment
|Dallas, Texas               |          | first mortgage (1)         | 180 units
|                            |          |                            |          
|Brighton Crest Apartments   | Phase I  | Partnership has a 17.5%    | Apartment
|Marietta, Georgia           | 06/30/87 | interest in the joint      | 320 units
|                            |          | venture which has fee      |          
|                            | Phase II | ownership subject to       |          
|                            | 12/15/87 | first and second mortgages |          



(1)

Property is held by a limited partnership in which the Partnership owns a 100% interest.



On June 29, 2007, the Partnership sold one of its investment properties, Lakeside Apartments, to a third party.  In addition to Lakeside Apartments, affiliates of the third party also purchased nine other apartment complexes, all of which were owned by entities affiliated with AIMCO Properties, L.P., an affiliate of the Managing General Partner of the Partnership. The total sales price for Lakeside Apartments and the other properties was approximately $95,800,000 of which approximately $8,850,000 was allocated to Lakeside Apartments.  The net proceeds realized by the Partnership were approximately $8,823,000 after payment of closing costs. The Partnership used approximately $2,611,000 to repay the mortgage encumbering the property. The Partnership realized a gain of approximately $5,753,000 for the year ended December 31, 2007, as a result of the sale. The propertys operations of approximately $167,000 and $211,000 are shown as loss from discontinued operations for the years ended December 31, 2007 and 2006, respectively, and include revenues of approximately $700,000 and $1,300,000, respectively. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $9,000 as a result of the write off of unamortized loan costs of approximately $4,000 and a termination fee of approximately $5,000.  This amount is included in loss from discontinued operations for the year ended December 31, 2007.



Schedule of Properties



Set forth below for each of the Partnership's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation, and Federal tax basis.



|                        |                |              |             |                |          
|----------------------- | -------------- | ------------ | ----------- | -------------- | ---------
|                        | Gross          |              |             |                |          
|                        | Carrying       | Accumulated  | Depreciable | Method of      | Federal  
|Property                | Value          | Depreciation | Life        | Depreciation   | Tax Basis
|                        | (in thousands) |              |             | (in thousands)
|                        |                |              |             |                |          
|Bexley House Apartments | $ 5,614        | $ 3,012      | 5-30 yrs    | S/L            | $ 2,252  
|Covington Pointe        |                |              |             |                |          
|Apartments              | 11,640         | 7,528        | 5-30 yrs    | S/L            | 5,284    
|                        | $17,254        | $10,540      |             |                | $7,536   







See "Note A" to the consolidated financial statements included in "Item 7. Financial Statements" for a description of the Partnership's capitalization and depreciation policies.



Schedule of Property Indebtedness



The following table sets forth certain information relating to the loans encumbering the Partnership's properties.



|                            |                |           |           |          |               
|--------------------------- | -------------- | --------- | --------- | -------- | --------------
|                            | Principal      |           |           |          | Principal     
|                            | Balance At     | Stated    |           |          | Balance       
|                            | December 31,   | Interest  | Period    | Maturity | Due At        
|Property                    | 2007           | Rate      | Amortized | Date     | Maturity (2)  
|                            | (in thousands) |           |           |          | (in thousands)
|                            |                |           |           |          |               
|Bexley House Apartments     |                |           |           |          |               
|1st mortgage                | $ 1,943        | 7.32% (1) | 20 years  | 01/01/21 | $    --       
|Covington Pointe Apartments |                |           |           |          |               
|1st mortgage                | 5,037          | 3.81% (1) | 20 years  | 07/01/10 | 4,416         
|                            |                |           |           |          |               
|Total                       | $6,980         |           |           |          | $4,416        



(1)

Fixed rate mortgage.



(2)

See "Note C" of the consolidated financial statements in "Item 7. Financial Statements" for information with respect to the Partnership's ability to prepay these loans and other details about the loans.



Schedule of Rental Rates and Occupancy



Average annual rental rates and occupancy for 2007 and 2006 for each property were:



|                            |                |           |      |     
|--------------------------- | -------------- | --------- | ---- | ----
|                            | Average Annual | Average  
|                            | Rental Rates   | Occupancy
|                            | (per Unit)     |           |     
|Property                    | 2007           | 2006      | 2007 | 2006
|Bexley House Apartments (1) | $11,877        | $11,602   | 97%  | 90% 
|Covington Pointe Apartments | 9,232          | 8,889     | 97%  | 98% 



(1)

The Managing General Partner attributes the increase in occupancy at Bexley House Apartments to an increase in resident referrals as well as an increase in units available for rent that in the prior year were unavailable due to a fire loss.



As noted under "Item 1. Description of Business", the real estate industry is highly competitive. All of the properties of the Partnership are subject to competition from other residential apartment complexes in the area.  The Managing General Partner believes that all of the properties are adequately insured.  Each property is an apartment complex which leases units for terms of one year or less. No tenant leases 10% or more of the available rental space.  All of the properties are in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age.







Schedule of Real Estate Taxes and Rates



Real estate taxes and rates in 2007 for each property were:



|                            |                |      
|--------------------------- | -------------- | -----
|                            | 2007           | 2007 
|                            | Billings       | Rates
|                            | (in thousands) |      
|Bexley House Apartments     | $ 90           | 9.14%
|Covington Pointe Apartments | $189           | 2.52%



Capital Improvements



Lakeside Apartments



During the year ended December 31, 2007, the Partnership completed approximately $90,000 of capital improvements at Lakeside Apartments, consisting primarily of appliance and floor covering replacements and air conditioning, water and sewer upgrades.  These improvements were funding from operating cash flow.  The property was sold to a third party on June 29, 2007.



Bexley House Apartments



During the year ended December 31, 2007, the Partnership completed approximately $72,000 of capital improvements at Bexley House Apartments, consisting primarily of washer/dryer replacements, parking lot resurfacing, building improvements, grounds lighting enhancements, recreational facility enhancements and floor covering replacements. These improvements were funded from operating cash flow.  The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2008. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.



Covington Pointe Apartments



During the year ended December 31, 2007, the Partnership completed approximately $327,000 of capital improvements at Covington Pointe Apartments, consisting primarily of air conditioning replacements, kitchen and bath resurfacing, roof replacements, water heater replacements, appliance upgrades and floor covering replacements. These improvements were funded from operating cash flow, insurance proceeds and advances from an affiliate of the Managing General Partner. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2008. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.



Additional capital expenditures will be incurred only if cash is available from operations, Partnership reserves, or advances from affiliates of the Managing General Partner. To the extent that capital improvements are completed, the Partnerships distributable cash flow, if any, may be adversely affected at least in the short term.



Item 3.

Legal Proceedings



In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its Managing General Partner and several of their affiliated partnerships and corporate entities. The action purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that are named as nominal defendants, challenging, among other things, the acquisition of interests in certain Managing General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities that were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, during the third quarter of 2001, a complaint captioned Heller v. Insignia Financial Group (the "Heller action") was filed against the same defendants that are named in the Nuanes action. On or about August 6, 2001, plaintiffs filed a first amended complaint. The Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 28, 2002, the trial court granted defendants motion to strike the complaint.  Plaintiffs took an appeal from this order.



On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. On June 13, 2003, the court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal (the Appeal) seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On May 4, 2004, the Objector filed a second appeal challenging the courts use of a referee and its order requiring Objector to pay those fees.



On March 21, 2005, the Court of Appeals issued opinions in both pending appeals.  With regard to the settlement and judgment entered thereto, the Court of Appeals vacated the trial courts order and remanded to the trial court for further findings on the basis that the state of the record is insufficient to permit meaningful appellate review.  The matter was transferred back to the trial court on June 21, 2005.  With regard to the second appeal, the Court of Appeals reversed the order requiring the Objector to pay referee fees. With respect to the related Heller appeal, on July 28, 2005, the Court of Appeals reversed the trial courts order striking the first amended complaint.



On August 18, 2005, Objector and his counsel filed a motion to disqualify the trial court based on a peremptory challenge and filed a motion to disqualify for cause on October 17, 2005, both of which were ultimately denied and/or struck by the trial court.  On or about October 13, 2005 Objector filed a motion to intervene and on or about October 19, 2005 filed both a motion to take discovery relating to the adequacy of plaintiffs as derivative representatives and a motion to dissolve the anti-suit injunction in connection with settlement.  On November 14, 2005, Plaintiffs filed a Motion For Further Findings pursuant to the remand ordered by the Court of Appeals. Defendants joined in that motion.  On February 3, 2006, the Court held a hearing on the various matters pending before it and ordered additional briefing from the parties and Objector. On June 30, 2006, the trial court entered an order confirming its approval of the class action settlement and entering judgment thereto after the Court of Appeals had remanded the matter for further findings.  The substantive terms of the settlement agreement remain unchanged.  The trial court also entered supplemental orders on July 1, 2006, denying Objectors Motion to File a Complaint in Intervention, Objectors Motion for Leave of Discovery and Objectors Motion to Dissolve the Anti-Suit Injunction.  Notice of Entry of Judgment was served on July 10, 2006.





On August 31, 2006, the Objector filed a Notice of Appeal to the Courts June 30, 2006 and July 1, 2006 orders. The matter was argued and submitted and the Court of Appeal issued an opinion on February 20, 2008 affirming the order approving the settlement and judgment entered thereto. On March 12, 2008, the Court of Appeal denied Appellants Petition for Re-Hearing.  Appellant has until April 1, 2008 to file a Petition for Review with the California Supreme Court.



The Managing General Partner does not anticipate that any costs to the Partnership, whether legal or settlement costs, associated with these cases will be material to the Partnerships overall operations.



Item 4.

Submission of Matters to a Vote of Security Holders



During the year ended December 31, 2007, no matters were submitted to a vote of unit holders through the solicitation of proxies or otherwise.











PART II



Item 5.

Market for the Partnerships Equity and Related Partner Matters



The Partnership, a publicly held limited partnership, sold 26,776 limited partnership units (the "Units") aggregating $26,776,000 during its offering period. As of December 31, 2007, there are 1,365 holders of record owning an aggregate of 26,776 Units.  Affiliates of the Managing General Partner owned 13,206.50 Units or 49.32% of the outstanding Units as of December 31, 2007.  No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future.



The Partnership distributed the following amounts during the years ended December 31, 2007 and 2006 (in thousands, except per unit data):



|         |              |                  |              |                 
|-------- | ------------ | ---------------- | ------------ | ----------------
|         | Year Ended   |                  | Year Ended   |                 
|         | December 31, | Per Limited Unit | December 31, | Per Limited Unit
|         | 2007         | Partnership      | 2006         | Partnership     
|         |              |                  |              |                 
|Sale (1) | $1,804       | $  65.36         | $   --       | $    --         



(1)

Distribution consists of sale proceeds from the June 2007 sale of Lakeside Apartments.



Future cash distributions will depend on the level of net cash generated from operations and the timing of debt maturities, refinancings, and/or property sales.  The Partnership's cash available for distribution is reviewed on a monthly basis.  There can be no assurance that the Partnership will generate sufficient funds from operations after required capital expenditures, to permit further distributions to its partners in 2008 or subsequent periods.  See "Item 2.  Description of Property  Capital Improvements" for information relating to anticipated capital expenditures at the properties.



In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 13,206.50 Units in the Partnership representing 49.32% of the outstanding Units at December 31, 2007.  A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers.  Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 49.32% of the outstanding Units, AIMCO and its affiliates are in a position to influence all voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.







Item 6.

Management's Discussion and Analysis or Plan of Operation



This item should be read in conjunction with the consolidated financial statements and other items contained elsewhere in this report.



The Partnerships financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment properties, interest rates on mortgage loans, costs incurred to operate the investment properties, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, the Managing General Partner may use rental concessions and rental rate reductions to offset softening market conditions, accordingly, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Further, a number of factors that are outside the control of the Partnership such as the local economic climate and weather can adversely or positively affect the Partnerships financial results.



Results of Operations



The Partnership had net income of approximately $5,133,000 for the year ended December 31, 2007 compared to a net loss of approximately $683,000 for the year ended December 31, 2006. The increase in net income is due to the recognition of a gain on sale of discontinued operations, a decrease in loss from discontinued operations, an increase in total revenues and a decrease in total expenses, partially offset by a decrease in the recognition of casualty gains between 2007 and 2006.



In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the consolidated statements of operations for the year ended December 31, 2006 have been restated to reflect the operations of Lakeside Apartments as discontinued operations as a result of the sale of the property on June 29, 2007.  The operations of Lakeside Apartments for the years ended December 31, 2007 and 2006 are included in loss from discontinued operations.



On June 29, 2007, the Partnership sold one of its investment properties, Lakeside Apartments, to a third party.  In addition to Lakeside Apartments, affiliates of the third party also purchased nine other apartment complexes, all of which were owned by entities affiliated with AIMCO Properties, L.P., an affiliate of the Managing General Partner of the Partnership. The total sales price for Lakeside Apartments and the other properties was approximately $95,800,000 of which approximately $8,850,000 was allocated to Lakeside Apartments.  The net proceeds realized by the Partnership were approximately $8,823,000 after payment of closing costs. The Partnership used approximately $2,611,000 to repay the mortgage encumbering the property.  The Partnership realized a gain of approximately $5,753,000 for the year ended December 31, 2007, as a result of the sale. The propertys operations of approximately $167,000 and $211,000 are shown as loss from discontinued operations for the years ended December 31, 2007 and 2006, respectively, and include revenues of approximately $700,000 and $1,300,000, respectively. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $9,000 as a result of the write off of unamortized loan costs of approximately $4,000 and a termination fee of approximately $5,000.  This amount is included in loss from discontinued operations for the year ended December 31, 2007.





Total revenues increased for the year ended December 31, 2007 due to increases in both rental and other income. Rental income increased due to an increase in the average rental rates at both Covington Pointe Apartments and Bexley House Apartments and an increase in occupancy at Bexley House Apartments partially offset by a decrease in occupancy at Covington Pointe Apartments. Other income increased due to an increase in utility reimbursements at both investment properties and an increase in interest income.



In May 2007, Covington Pointe suffered damages to two of its rental units as a result of vandalism and water damage.  Insurance proceeds of approximately $19,000 were received during the year ended December 31, 2007. The Partnership recognized a casualty gain of approximately $16,000 for the year ended December 31, 2007 as a result of the receipt of approximately $19,000 in insurance proceeds net of the write-off of the undepreciated damaged assets of approximately $3,000.



In December 2005, Bexley House Apartments suffered fire damage to two of its rental units.  Insurance proceeds of approximately $224,000 were received during the year ended December 31, 2006.  The Partnership recognized a casualty gain of approximately $191,000 for the year ended December 31, 2006 as a result of the receipt of approximately $224,000 in insurance proceeds net of the write-off of the undepreciated damaged assets of approximately $33,000.



The decrease in total expenses for the year ended December 31, 2007 is due to decreases in interest and property tax expenses partially offset by an increase in operating expense. General and administrative and depreciation expenses remained relatively constant for the comparable periods. The decrease in interest expense is due to decreases in interest on advances from an affiliate of the Managing General Partner as a result of the advances being fully repaid at the end of the second quarter of 2007. The decrease in property tax expense for the year ended December 31, 2007 is due to the receipt of a refund of prior year taxes due to a decrease in the assessed value of Bexley House Apartments during the second quarter of 2007 in addition to a reduced assessed value for 2007.  The increase in operating expenses is due to increases in property, administrative and maintenance expenses offset by a decrease in insurance expense.  Property expense increased due to increases in payroll costs at Covington Pointe Apartments offset by a decrease in utility costs at Bexley House Apartments.  Administrative expenses increased due to increases in costs associated with appealing the property taxes at Bexley House Apartments and personnel costs at Covington Pointe Apartments.  Maintenance expense increased primarily due to increases in casualty repair costs at Covington Pointe Apartments.  Insurance expense decreased due to a decrease in hazard insurance premiums at both investment properties.



Included in general and administrative expense for the years ended December 31, 2007 and 2006 are management reimbursements to an affiliate of the Managing General Partner as allowed under the Partnership Agreement. Also included in general and administrative expenses are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement.



The Partnership owns a 17.5% interest in Sterling Crest Joint Venture (the Joint Venture). The Partnership recognized equity in loss of the joint venture of approximately $68,000 for the year ended December 31, 2007 compared to approximately $56,000 for the year ended December 31, 2006.



Liquidity and Capital Resources



At December 31, 2007 the Partnership had cash and cash equivalents of approximately $841,000 compared to approximately $279,000 at December 31, 2006. Cash and cash equivalents increased approximately $562,000 since December 31, 2006 due to approximately $8,356,000 of cash provided by investing activities partially offset by approximately $7,579,000 of cash used in financing activities and approximately $215,000 of cash used in operating activities. Cash provided by investing activities consisted of proceeds from the sale of Lakeside Apartments, insurance proceeds received and the receipt of net withdrawals from restricted escrows partially offset by property improvements and replacements. Cash used in financing activities consisted of payments of principal on the mortgages encumbering the Partnerships investment properties, repayment of the mortgage encumbering Lakeside Apartments, distributions of proceeds from the sale of Lakeside Apartments to partners and repayment of advances from an affiliate of the Managing General Partner partially offset by the receipt of advances from an affiliate of the Managing General Partner. The Partnership invests its working capital reserves in interest bearing accounts.



The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the investment properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state and local legal and regulatory requirements.  The Managing General Partner monitors developments in the area of legal and regulatory compliance.  The Partnership regularly evaluates the capital improvement needs of the properties. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2008.  Such capital expenditures will depend on the physical condition of the properties as well as anticipated cash flow generated by the properties.  Capital expenditures will be incurred only if cash is available from operations, Partnership reserves or advances from AIMCO Properties, L.P., an affiliate of the Managing General Partner, although AIMCO Properties, L.P. is not obligated to provide such advances.  For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.  To the extent that capital improvements are completed, the Partnerships distributable cash flow, if any, may be adversely affected at least in the short term.



The Partnership's assets are thought to be generally sufficient for any near-term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness encumbering the Partnership's investment properties of approximately $6,980,000 is amortized over varying periods, with a balloon payment of approximately $4,416,000 due in July 2010 for Covington Pointe Apartments. The debt encumbering Bexley House Apartments matures in January 2021 at which time the loan is scheduled to be fully amortized. The Managing General Partner will attempt to refinance and/or sell the properties prior to such maturity dates. If the properties cannot be refinanced or sold for a sufficient amount, the Partnership may risk losing such properties through foreclosure.



The Partnership distributed the following amounts during the year ended December 31, 2007 (in thousands, except per unit data):



|         |              |             |              |            
|-------- | ------------ | ----------- | ------------ | -----------
|         | Year Ended   | Per Limited | Year Ended   | Per Limited
|         | December 31, | Partnership | December 31, | Partnership
|         | 2007         | Unit        | 2006         | Unit       
|         |              |             |              |            
|Sale (1) | $1,804       | $65.36      | $   --       | $   --     



(1)

Distribution consists of sale proceeds from the June 2007 sale of Lakeside Apartments.



Future cash distributions will depend on the levels of net cash generated from operations, and the timing of debt maturities, property sales and/or refinancings.  The Partnerships cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after capital expenditures to permit additional distributions to its partners during 2008 or subsequent periods.



In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 13,206.50 limited partnership units (the "Units") in the Partnership representing 49.32% of the outstanding Units at December 31, 2007.  A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers.  Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 49.32% of the outstanding Units, AIMCO and its affiliates are in a position to influence all voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.



Critical Accounting Policies and Estimates



A summary of the Partnerships significant accounting policies is included in "Note A  Organization and Summary of Significant Accounting Policies" which is included in the consolidated financial statements in "Item 7. Financial Statements".  The Managing General Partner believes that the consistent application of these policies enables the Partnership to provide readers of the consolidated financial statements with useful and reliable information about the Partnerships operating results and financial condition.  The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Partnership to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.  Judgments and assessments of uncertainties are required in applying the Partnerships accounting policies in many areas.  The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.



Impairment of Long-Lived Assets



Investment properties are recorded at cost, less accumulated depreciation, unless the carrying amount of the asset is not recoverable.  If events or circumstances indicate that the carrying amount of a property may not be recoverable, the Partnership will make an assessment of its recoverability by comparing the carrying amount to the Partnerships estimate of the undiscounted future cash flows, excluding interest charges, of the property.   If the carrying amount exceeds the aggregate undiscounted future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.



Real property investment is subject to varying degrees of risk.  Several factors may adversely affect the economic performance and value of the Partnerships investment properties.  These factors include, but are not limited to, general economic climate; competition from other apartment communities and other housing options; local conditions, such as loss of jobs or an increase in the supply of apartments that might adversely affect apartment occupancy or rental rates; changes in governmental regulations and the related cost of compliance; increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents; and changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing.  Any adverse changes in these factors could cause impairment of the Partnerships assets.



Revenue Recognition



The Partnership generally leases apartment units for twelve-month terms or less.  The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area.  Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease.  The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.



Capitalized Costs Related to Redevelopment and Construction Projects



The Partnership capitalizes costs incurred in connection with capital expenditure activities, including redevelopment and construction projects. Costs including interest, property taxes and operating costs associated with redevelopment and construction projects are capitalized in accordance with Statement of Financial Accounting Standard (SFAS) No. 34 Capitalization of Interest Costs and SFAS No. 67, Accounting for Costs and the Initial Rental Operations of Real Estate Properties. Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with the planning, execution and control of all capital expenditure activities at the property level.













Item 7.

Financial Statements



DAVIDSON INCOME REAL ESTATE, L.P.



LIST OF CONSOLIDATED FINANCIAL STATEMENTS



Report of Independent Registered Public Accounting Firm



Consolidated Balance Sheet - December 31, 2007



Consolidated Statements of Operations - Years ended December 31, 2007 and 2006, as restated



Consolidated Statements of Changes in Partners' (Deficiency) Capital - Years ended December 31, 2007 and 2006



Consolidated Statements of Cash Flows - Years ended December 31, 2007 and 2006



Notes to Consolidated Financial Statements











Report of Independent Registered Public Accounting Firm







The Partners

Davidson Income Real Estate, L.P.





We have audited the accompanying consolidated balance sheet of Davidson Income Real Estate, L.P. as of December 31, 2007, and the related consolidated statements of operations, changes in partners' (deficiency) capital, and cash flows for each of the two years in the period ended December 31, 2007.  These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  We were not engaged to perform an audit of the Partnerships internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnerships internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Davidson Income Real Estate, L.P. at December 31, 2007, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.





/s/ERNST & YOUNG LLP







Greenville, South Carolina

March 28, 2008













|                                 
|---------------------------------
|DAVIDSON INCOME REAL ESTATE, L.P.
|                                 
|CONSOLIDATED BALANCE SHEET       
|(in thousands, except unit data) 
|                                 
|December 31, 2007                





|                                               |           |         
|---------------------------------------------- | --------- | --------
|Assets                                         |           |         
|Cash and cash equivalents                      |           | $    841
|Receivables and deposits                       |           | 78      
|Other assets                                   |           | 141     
|Investment properties (Notes C, G and H):      |           |         
|Land                                           | $  2,477  |         
|Buildings and related personal property        | 14,777    |         
|                                               | 17,254    |         
|Less accumulated depreciation                  | (10,540)  | 6,714   
|                                               |           | $7,774  
|Liabilities and Partners' (Deficiency) Capital |           |         
|Liabilities                                    |           |         
|Accounts payable                               |           | $     43
|Tenant security deposit liabilities            |           | 34      
|Accrued property taxes                         |           | 279     
|Other liabilities                              |           | 144     
|Mortgage notes payable (Note C)                |           | 6,980   
|Deficit in joint venture investment (Note B)   |           | 1,055   
|                                               |           |         
|Partners' (Deficiency) Capital                 |           |         
|General partners                               | $   (795) |         
|Limited partners (26,776 units issued and      |           |         
|outstanding)                                   | 34        | (761)   
|                                               |           | $7,774  





See Accompanying Notes to Consolidated Financial Statements













|                                     
|-------------------------------------
|DAVIDSON INCOME REAL ESTATE, L.P.    
|                                     
|CONSOLIDATED STATEMENTS OF OPERATIONS
|(in thousands, except per unit data) 



|                                                      |                          |           
|----------------------------------------------------- | ------------------------ | ----------
|                                                      | Years Ended December 31,
|                                                      | 2007                     | 2006      
|                                                      |                          | (Restated)
|Revenues:                                             |                          |           
|Rental income                                         | $ 2,339                  | $ 2,220   
|Other income                                          | 256                      | 193       
|Total revenues                                        | 2,595                    | 2,413     
|                                                      |                          |           
|Expenses:                                             |                          |           
|Operating                                             | 1,346                    | 1,197     
|General and administrative                            | 186                      | 177       
|Depreciation                                          | 712                      | 697       
|Interest                                              | 519                      | 644       
|Property taxes                                        | 224                      | 305       
|Total expenses                                        | 2,987                    | 3,020     
|                                                      |                          |           
|Loss before casualty gains, equity in loss of         |                          |           
|joint venture and discontinued operations             | (392)                    | (607)     
|Casualty gains (Note D)                               | 16                       | 191       
|Equity in loss of joint venture (Note B)              | (68)                     | (56)      
|Loss before discontinued operations                   | (444)                    | (472)     
|Loss from discontinued operations (Notes A and G)     | (176)                    | (211)     
|Gain on sale of discontinued operations (Note G)      | 5,753                    | --        
|Net income (loss) (Note E)                            | $5,133                   | $(683)    
|                                                      |                          |           
|Net income (loss) allocated to general partners (3%)  | $   154                  | $   (20)  
|Net income (loss) allocated to limited partners (97%) | 4,979                    | (663)     
|                                                      | $5,133                   | $(683)    
|                                                      |                          |           
|Per limited partnership unit:                         |                          |           
|Loss from continuing operations                       | $(16.10)                 | $(17.10)  
|Loss from discontinued operations                     | (6.39)                   | (7.66)    
|Gain on sale of discontinued operations               | 208.44                   | --        
|                                                      | $185.95                  | $(24.76)  
|                                                      |                          |           
|Distributions per limited partnership Unit            | $65.36                   | $--       





See Accompanying Notes to Consolidated Financial Statements











|                                                                    
|--------------------------------------------------------------------
|DAVIDSON INCOME REAL ESTATE, L.P.                                   
|                                                                    
|CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIENCY) CAPITAL
|(in thousands, except unit data)                                    







|                                  |             |          |          |         
|--------------------------------- | ----------- | -------- | -------- | --------
|                                  | Limited     |          |          |         
|                                  | Partnership | General  | Limited  |         
|                                  | Units       | Partners | Partners | Total   
|                                  |             |          |          |         
|Original capital contributions    | 26,776      | $1       | $26,776  | $26,777 
|                                  |             |          |          |         
|Partners' deficit at              |             |          |          |         
|December 31, 2005                 | 26,776      | $ (875)  | $(2,532) | $(3,407)
|                                  |             |          |          |         
|Net loss for the year ended       |             |          |          |         
|December 31, 2006                 | --          | (20)     | (663)    | (683)   
|                                  |             |          |          |         
|Partners' deficit at              |             |          |          |         
|December 31, 2006                 | 26,776      | (895)    | (3,195)  | (4,090) 
|                                  |             |          |          |         
|Distribution to partners          | --          | (54)     | (1,750)  | (1,804) 
|                                  |             |          |          |         
|Net income for the year ended     |             |          |          |         
|December 31, 2007                 | --          | 154      | 4,979    | 5,133   
|                                  |             |          |          |         
|Partners' (deficiency) capital at |             |          |          |         
|December 31, 2007                 | 26,776      | $(795)   | $34      | $(761)  





See Accompanying Notes to Consolidated Financial Statements















|                                     
|-------------------------------------
|DAVIDSON INCOME REAL ESTATE, L.P.    
|                                     
|CONSOLIDATED STATEMENTS OF CASH FLOWS
|(in thousands)                       



|                                                       |                          |         
|------------------------------------------------------ | ------------------------ | --------
|                                                       | Years Ended December 31,
|                                                       | 2007                     | 2006    
|Cash flows from operating activities:                  |                          |         
|Net income (loss)                                      | $ 5,133                  | $  (683)
|Adjustments to reconcile net income (loss) to net cash |                          |         
|(used in) provided by operating activities:            |                          |         
|Casualty gains                                         | (16)                     | (191)   
|Gain on sale of investment property                    | (5,753)                  | --      
|Depreciation                                           | 922                      | 1,136   
|Loss on extinguishment of debt                         | 9                        | --      
|Amortization of loan costs                             | 28                       | 36      
|Equity in loss of joint venture investment             | 68                       | 56      
|Change in accounts:                                    |                          |         
|Receivables and deposits                               | 61                       | 6       
|Other assets                                           | 37                       | 5       
|Accounts payable                                       | (43)                     | (21)    
|Tenant security deposit liabilities                    | (40)                     | 9       
|Accrued property taxes                                 | (36)                     | (10)    
|Other liabilities                                      | (7)                      | (4)     
|Due to affiliates                                      | (578)                    | 327     
|Net cash (used in) provided by operating activities    | (215)                    | 666     
|                                                       |                          |         
|Cash flows from investing activities:                  |                          |         
|Net proceeds from sale of investment property          | 8,823                    | --      
|Property improvements and replacements                 | (492)                    | (873)   
|Net withdrawals from restricted escrows                | 6                        | 15      
|Insurance proceeds from casualty                       | 19                       | 224     
|Net cash provided by (used in) investing activities    | 8,356                    | (634)   
|                                                       |                          |         
|Cash flows from financing activities:                  |                          |         
|Payments on mortgage notes payable                     | (356)                    | (378)   
|Repayment of mortgage note payable                     | (2,611)                  | --      
|Distributions to partners                              | (1,804)                  | --      
|Advances from affiliates                               | 123                      | 424     
|Repayment of advances from affiliates                  | (2,931)                  | --      
|Net cash (used in) provided by financing activities    | (7,579)                  | 46      
|                                                       |                          |         
|Net increase in cash and cash equivalents              | 562                      | 78      
|Cash and cash equivalents at beginning of year         | 279                      | 201     
|                                                       |                          |         
|Cash and cash equivalents at end of year               | $841                     | $279    
|                                                       |                          |         
|Supplemental disclosure of cash flow information:      |                          |         
|Cash paid for interest, net of capitalized interest    | $1,069                   | $511    
|                                                       |                          |         
|Supplemental disclosure of non-cash activity:          |                          |         
|Property improvements and replacements in accounts     |                          |         
|payable                                                | $3                       | $6      



At December 31, 2005, approximately $21,000 of property improvements and replacements were included in accounts payable which are included in property improvements and replacements for the year ended December 31, 2006.



See Accompanying Notes to Consolidated Financial Statements















|                                          
|------------------------------------------
|DAVIDSON INCOME REAL ESTATE, L.P.         
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|December 31, 2007                         





Note A - Organization and Summary of Significant Accounting Policies



Organization



Davidson Income Real Estate, L.P. (the "Partnership" or "Registrant") is a Delaware limited partnership organized in April 1985 to acquire and operate residential real estate properties.  The general partners of the Partnership are Davidson Diversified Properties, Inc., a Tennessee corporation ("Managing General Partner"), David W. Talley and James T. Gunn (collectively, "Individual General Partners") (collectively, the "General Partners").  The Partnership owns and operates two apartment properties located in the Midwest and South and owns a joint venture interest in an entity which owns one residential property which is located in the South.  The Managing General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2010, unless terminated prior to such date.



In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the accompanying consolidated statement of operations for the year ended December 31, 2006 has been restated to reflect the operations of Lakeside Apartments as discontinued operations as a result of the sale of the property on June 29, 2007 (see Note G).  The operations of Lakeside Apartments for the years ended December 31, 2007 and 2006 are included in loss from discontinued operations.



Certain reclassifications have been made to the 2006 balances to conform to the 2007 presentations.



Principles of Consolidation



The consolidated financial statements of the Partnership include its 100% ownership interests in the following partnerships: Bexley House, L.P. and Davidson IRE Associates, L.P.  All significant interpartnership balances have been eliminated.



Use of Estimates



The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.



Allocations to Partners



Net loss of the Partnership and taxable loss are allocated 97% to the limited partners and 3% to the General Partners, except for such amounts which are allocated prior to the Partnership meeting the minimum close requirements as defined in the Partnership Agreement.  Distributions of available cash from operations are allocated 97% to the limited partners and 3% to the General Partners.  Cash from sales or refinancing are allocated 97% to limited partners and 3% to General Partners until the limited partners have received an amount of cumulative distributions from sales or refinancings that equal their original invested capital plus an amount which, when added to the prior distributions to limited partners, will equal 12% per annum cumulative and noncompounded on adjusted invested capital, as defined in the Partnership Agreement.  Thereafter, upon payment to an affiliate of the General Partners certain real estate commissions and incentive fees as described in the Partnership Agreement, remaining cash from sales or refinancings are allocated 97% to the limited partners and 3% to the General Partners.  In connection with the liquidation of the Partnership, cash from sales or refinancings and any remaining working capital reserves shall be allocated among, and distributed to, the partners in proportion to, and to the extent of, their positive capital account balances.



Investment Properties



Investment properties consist of two apartment complexes and are stated at cost.  The Partnership capitalizes costs incurred in connection with capital expenditure activities, including redevelopment and construction projects, other tangible property improvements and replacements of existing property components.  Costs including interest, property taxes and operating costs associated with redevelopment and construction projects are capitalized during periods in which redevelopment and construction projects are in progress in accordance with Statement of Financial Standards (SFAS) No. 34 Capitalization of Interest Costs and SFAS No. 67, Accounting for Costs and the Initial Rental Operations of Real Estate Properties.  Costs incurred in connection with capital projects are capitalized where the costs of the project exceed $250.  Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with the planning, execution and control of all capital expenditure activities at the property level.  The Partnership capitalized approximately $15,000, $10,000, and $3,000 of construction period interest, property taxes and operating costs during the year ended December 31, 2006. The Partnership did not capitalize any costs related to interest, property taxes or operating costs during the year ended December 31, 2007. Capitalized costs are depreciated over the useful life of the asset.  Expenditures for ordinary repairs, maintenance and apartment turnover costs are expensed as incurred.



In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.  No adjustments for impairment of value were necessary for the years ending December 31, 2007 and 2006.



Depreciation



Depreciation is provided by the straight-line method over the estimated lives of the apartment property and related personal property.  For Federal income tax purposes, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years and (2) personal property additions over 5 years.



Cash and Cash Equivalents



Cash and cash equivalents include cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $790,000 at December 31, 2007 that are maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts.



Tenant Security Deposits



The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in cash and cash equivalents.  The security deposits are refunded when the tenant vacates, provided the tenant has not damaged the space and is current on rental payments.



Deferred Costs



Loan costs of approximately $172,000, less accumulated amortization of approximately $94,000, are included in other assets.  The loan costs are being amortized over the terms of the related loan agreements. Amortization expense of approximately $28,000 and $36,000 for the years ending December 31, 2007 and 2006, respectively, is included in interest expense and loss from discontinued operations.  Amortization expense is expected to be approximately $20,000 for each of the years 2008 and 2009, $12,000 for the year 2010 and approximately $3,000 for each of the years 2011 and 2012.



Leasing commissions and other direct costs incurred in connection with successful leasing efforts are deferred and amortized over the terms of the related leases.  Amortization of these costs is included in operating expenses and loss from discontinued operations.



Leases



The Partnership generally leases apartment units for twelve-month terms or less.  The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area.  Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease.  The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.



Joint Venture Investment



The Partnership accounts for its investment in the Sterling Crest Joint Venture using the equity method of accounting (see "Note B" for further discussion).



Segment Reporting



SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" established standards for the way that public business enterprises report information about operating segments in annual financial statements and required that those enterprises report selected information about operating segments in interim financial reports.  SFAS No. 131 also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment.



Advertising



The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses and loss from discontinued operations, was approximately $93,000 and $105,000 for the years ended December 31, 2007 and 2006, respectively.



Fair Value of Financial Instruments



SFAS No. 107 "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments whether or not recognized in the balance sheet, for which it is practicable to estimate fair value.  Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.  The Partnership believes that the carrying amount of its financial instruments, (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The Partnership estimates the fair value of its long-term debt by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Partnership for similar term long term debt. The fair value of the Partnership's long term debt at the Partnerships incremental borrowing rate approximates its carrying value.



Recent Accounting Pronouncements



In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value and does not expand the use of fair value in any new circumstances. SFAS No. 157 establishes a hierarchy that prioritizes the information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, such as the reporting entitys own data. SFAS No. 157 requires fair value measurements to be disclosed by level within the fair value hierarchy. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157, which deferred the effective date of SFAS No. 157 for all nonrecurring fair value measurements of non-financial assets and non-financial liabilities until fiscal years beginning after November 15, 2008.  The provisions of SFAS No. 157 are applicable to recurring fair value measurements of financial assets and liabilities for fiscal years beginning after November 15, 2007, which for the Partnership is generally limited to annual disclosures required by SFAS No. 107.  The Partnership is in the process of implementing SFAS No. 157; however, it has not completed its evaluation and thus has not yet determined the effect that SFAS No. 157 will have on the Partnerships consolidated financial statements.



In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Partnership adopted SFAS No. 159 on January 1, 2008, and at that time did not elect the fair value option for any of its financial instruments or other items within the scope of SFAS No. 159.



In June 2007, the American Institute of Certified Public Accountants (the AICPA) issued Statement of Position No. 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies ("SOP 07-1").  SOP 07-1 provides guidance for determining whether the accounting principles of the AICPA Audit and Accounting Guide Investment Companies are required to be applied to an entity by clarifying the definition of an investment company and, whether investment company accounting should be retained by a parent company upon consolidation of an investment company subsidiary, or by an investor in the application of the equity method of accounting to an investment company investee.



In February 2008, the FASB issued FASB Staff Position SOP 07-1-1 that indefinitely defers the effective date of SOP 07-1.



Note B - Deficit in Joint Venture Investment



The Partnership owns a 17.5% general partnership interest in the Sterling Crest Joint Venture ("Sterling Crest") with Davidson Growth Plus, L.P., an affiliate of the Managing General Partner, which owns the remaining 82.5% of the joint venture. In connection with the joint venture's purchase of Phase I of Brighton Crest Apartments on June 30, 1987, the Partnership invested approximately $2,727,000 in the joint venture. The joint venture purchased Phase II of Brighton Crest Apartments on December 15, 1987.



The Partnership accounts for its 17.5% investment in Sterling Crest on the equity method of accounting. In accordance with the equity method of accounting, the Partnership's original investment in Sterling Crest is increased by advances to Sterling Crest and by the Partnership's share of the earnings of Sterling Crest. The investment is decreased by distributions from Sterling Crest and by the Partnership's share of losses of Sterling Crest. The Partnership's equity in the operations of Sterling Crest amounted to losses of approximately $68,000 and $56,000 for the years ended December 31, 2007 and 2006, respectively. At December 31, 2007, the Partnership had received distributions in excess of its general partnership investment and has an investment deficit of approximately $1,055,000.



The following table represents Sterling Crest's net liabilities as of December 31, 2007 and net loss for the years ended December 31, 2007 and 2006 (in thousands):



|                  |                  
|----------------- | -----------------
|                  | December 31, 2007
|                  |                  
|Total assets      | $  6,305         
|Total liabilities | (12,332)         
|                  |                  
|Net liabilities   | $(6,027)         



|               |                          |        
|-------------- | ------------------------ | -------
|               | Years Ended December 31,
|               | 2007                     | 2006   
|               |                          |        
|Total revenues | $ 2,553                  | $ 2,557
|Total expenses | (2,939)                  | (2,879)
|               |                          |        
|Net loss       | $(386)                   | $(322) 



Note C - Mortgage Notes Payable



The terms of mortgage notes payable are as follows:



|                        |                |           |             |                |          
|----------------------- | -------------- | --------- | ----------- | -------------- | ---------
|                        | Principal      | Monthly   |             |                | Principal
|                        | Balance At     | Payment   | Stated      |                | Balance  
|                        | December 31,   | Including | Interest    | Maturity       | Due At   
|Property                | 2007           | Interest  | Rate        | Date           | Maturity 
|                        | (in thousands) |           |             | (in thousands)
|                        |                |           |             |                |          
|Bexley House Apartments | $ 1,943        | $ 19      | 7.32%(1)(2) | 01/01/21       | $    --  
|1st mortgage            |                |           |             |                |          
|Covington Pointe        |                |           |             |                |          
|Apartments              | 5,037          | 36        | 3.81%(1)(2) | 07/01/10       | 4,416    
|1st mortgage            |                |           |             |                |          
|                        | $6,980         | $55       |             |                | $4,416   



(1)

Fixed rate mortgage.



The mortgage notes payable are non-recourse and are secured by a pledge of the Partnerships rental properties and by pledge of revenues from the respective investment properties.  Certain of the notes require prepayment penalties if repaid prior to maturity and prohibit resale of the properties subject to existing indebtedness.



Scheduled principal payments of the mortgage notes payable subsequent to December 31, 2007 are as follows (in thousands):



|           |        
|---------- | -------
|2008       | $   333
|2009       | 350    
|2010       | 4,651  
|2011       | 115    
|2012       | 123    
|Thereafter | 1,408  
|           | $6,980 



Note D  Casualty Gains



In May 2007, Covington Pointe suffered damages to two of its rental units as a result of vandalism and water damage.  Insurance proceeds of approximately $19,000 were received during the year ended December 31, 2007. The Partnership recognized a casualty gain of approximately $16,000 for the year ended December 31, 2007 as a result of the receipt of approximately $19,000 in insurance proceeds net of the write-off of the undepreciated damaged assets of approximately $3,000.



In December 2005, Bexley House Apartments suffered fire damage to two of its rental units.  Insurance proceeds of approximately $224,000 were received during the year ended December 31, 2006. The Partnership recognized a casualty gain of approximately $191,000 for the year ended December 31, 2006 as a result of the receipt of approximately $224,000 in insurance proceeds net of the write-off of the undepreciated damaged assets of approximately $33,000.



Note E - Income Taxes



The Partnership received a ruling from the Internal Revenue Service that it is to be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the consolidated financial statements of the Partnership.  Taxable income or loss of the Partnership is reported in the income tax returns of its partners.





The following is a reconciliation of reported net income (loss) and Federal taxable income (loss) (in thousands, except per unit data):



|                              |            |          
|----------------------------- | ---------- | ---------
|                              | 2007       | 2006     
|                              |            |          
|Net income (loss) as reported | $ 5,133    | $  (683) 
|Add (deduct)                  |            |          
|Depreciation differences      | 221        | 279      
|Equity in joint venture       | (32)       | 31       
|Prepaid rents                 | 2          | (20)     
|Casualty                      | (15)       | (191)    
|Gain on sale of property      | (975)      | --       
|Other                         | 16         | (151)    
|                              |            |          
|Federal taxable income (loss) | $4,350     | $(735)   
|Federal taxable income        |            |          
|per limited partnership unit  | $90.24 (1) | $1.27 (1)



(1) For 2007 and 2006 allocations under the Internal Revenue Code section 704(b) result in the limited partners being allocated a non-pro rata amount of taxable loss or income.



The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets as of December 31, 2007 (in thousands):



|                               |          
|------------------------------ | ---------
|Net liabilities as reported    | $   (761)
|Land and buildings             | 136      
|Accumulated depreciation       | 686      
|Syndication                    | 3,809    
|Other                          | 632      
|                               |          
|Net assets - Federal tax basis | $4,502   



Note F - Transactions with Affiliated Parties



The Partnership has no employees and depends on the Managing General Partner and its affiliates for the management and administration of all Partnership activities.  The Partnership Agreement provides for (i) payments to affiliates for property management services and (ii) for reimbursement of certain expenses incurred by affiliates on behalf of the Partnership.



Affiliates of the Managing General Partner receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $162,000 and $183,000 for the years ended December 31, 2007 and 2006, respectively, which is included in operating expenses and loss from discontinued operations.



An affiliate of the Managing General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $138,000 and $173,000 for the years ended December 31, 2007 and 2006, respectively, which is included in general and administrative expenses, investment properties and gain on sale of discontinued operations. The portion of these reimbursements included in investment properties and gain on sale of discontinued operations for the years ended December 31, 2007 and 2006 are construction management services provided by an affiliate of the Managing General Partner of approximately $37,000 and $75,000, respectively.





During the years ended December 31, 2007 and 2006, AIMCO Properties, L.P., an affiliate of the Managing General Partner, advanced the Partnership approximately $123,000 and $424,000, respectively, to pay accounts payable and real estate taxes at Covington Pointe Apartments and accounts payable at Lakeside Apartments during 2007 and to fund capital improvements and pay accounts payable at Bexley House Apartments and Covington Pointe Apartments during 2006. During the year ended December 31, 2007, approximately $3,560,000 in outstanding loans and accrued interest were paid to AIMCO Properties, L.P. from the net proceeds received from the sale of Lakeside Apartments. There were no payments made during the year ended December 31, 2006. Interest on the advances is charged at prime plus 1%. Interest expense on advances from AIMCO Properties, L.P. was approximately $157,000 and $276,000 for the years ended December 31, 2007 and 2006, respectively. At December 31, 2007 there were no advances or associated accrued interest owed to AIMCO Properties, L.P. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances.  For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.



The Partnership Agreement provides for payment of a fee to the Managing General Partner for managing the affairs of the Partnership.  The fee is 2% of adjusted cash from operations, as defined in the Partnership Agreement.  The fee is payable only after the Partnership has distributed, to all limited partners, adjusted cash from operations in any year equal to 10% of their adjusted invested capital as defined in the partnership agreement.  No fees were earned or are payable for the years ended December 31, 2007 and 2006.



The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty, general liability and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the years ended December 31, 2007 and 2006, the Partnership was charged by AIMCO and its affiliates approximately $123,000 and $92,000, respectively, for insurance coverage and fees associated with policy claims administration.



In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 13,206.50 limited partnership units (the "Units") in the Partnership representing 49.32% of the outstanding Units at December 31, 2007.  A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers.  Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 49.32% of the outstanding Units, AIMCO and its affiliates are in a position to influence all voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.





Note G  Disposition of Investment Property



On June 29, 2007, the Partnership sold one of its investment properties, Lakeside Apartments, to a third party.  In addition to Lakeside Apartments, affiliates of the third party also purchased nine other apartment complexes, all of which were owned by entities affiliated with AIMCO Properties, L.P., an affiliate of the Managing General Partner of the Partnership. The total sales price for Lakeside Apartments and the other properties was approximately $95,800,000 of which approximately $8,850,000 was allocated to Lakeside Apartments.  The net proceeds realized by the Partnership were approximately $8,823,000 after payment of closing costs. The Partnership used approximately $2,611,000 to repay the mortgage encumbering the property. The Partnership realized a gain of approximately $5,753,000 for the year ended December 31, 2007, as a result of the sale. The propertys operations of approximately $167,000 and $211,000 are shown as loss from discontinued operations for the years ended December 31, 2007 and 2006, respectively, and include revenues of approximately $700,000 and $1,300,000, respectively. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $9,000 as a result of the write off of unamortized loan costs of approximately $4,000 and a termination fee of approximately $5,000.  This amount is included in loss from discontinued operations for the year ended December 31, 2007.



Note H  Investment Properties and Accumulated Depreciation



|                        |                |                |             |               
|----------------------- | -------------- | -------------- | ----------- | --------------
|                        |                | Initial Cost   |            
|                        |                | To Partnership |            
|                        |                | (in thousands) |            
|                        |                |                |             |               
|                        |                |                |             |               
|                        |                |                | Buildings   | Net Cost      
|                        |                |                | and Related | Capitalized   
|                        |                |                | Personal    | Subsequent to 
|Description             | Encumbrances   | Land           | Property    | Acquisition   
|                        | (in thousands) |                |             | (in thousands)
|Bexley House Apartments | $ 1,943        | $   647        | $ 3,067     | $  1,900      
|Covington Pointe        |                |                |             |               
|Apartments              | 5,037          | 1,935          | 7,041       | 2,664         
|                        |                |                |             |               
|Totals                  | $6,980         | $2,582         | $10,108     | $4,564        







|                 |                               |             |         |                |              |          |            
|---------------- | ----------------------------- | ----------- | ------- | -------------- | ------------ | -------- | -----------
|                 | Gross Amount At Which Carried |             |         |                |             
|                 | At December 31, 2007          |             |         |                |             
|                 | (in thousands)                |             |         |                |             
|                 |                               | Buildings   |         |                |              |          |            
|                 |                               | And Related |         |                |              |          |            
|                 |                               | Personal    |         | Accumulated    | Date of      | Date     | Depreciable
|Description      | Land                          | Property    | Total   | Depreciation   | Construction | Acquired | Life-Years 
|                 |                               |             |         | (in thousands) |              |          |            
|Bexley House     |                               |             |         |                |              |          |            
|Apartments       | $  542                        | $ 5,072     | $ 5,614 | $ 3,012        | 1972         | 09/86    | 5-30       
|Covington Pointe |                               |             |         |                |              |          |            
|Apartments       | 1,935                         | 9,705       | 11,640  | 7,528          | 1982         | 03/87    | 5-30       
|                 |                               |             |         |                |              |          |            
|Totals           | $2,477                        | $14,777     | $17,254 | $10,540        |              |          |            



Reconciliation of "investment properties and accumulated depreciation"



|                                       |                          |        
|-------------------------------------- | ------------------------ | -------
|                                       | Years Ended December 31,
|                                       | 2007                     | 2006   
|                                       | (in thousands)          
|Investment Properties                  |                          |        
|Balance at beginning of year           | $25,685                  | $24,976
|Property improvements and replacements | 489                      | 858    
|Disposals of property                  | (8,920)                  | (149)  
|Balance at end of year                 | $17,254                  | $25,685
|                                       |                          |        
|Accumulated Depreciation               |                          |        
|Balance at beginning of year           | $15,484                  | $14,464
|Additions charged to expense           | 922                      | 1,136  
|Disposals of property                  | (5,866)                  | (116)  
|Balance at end of year                 | $10,540                  | $15,484



The aggregate cost of the real estate for Federal income tax purposes at December 31, 2007 and 2006, is approximately $17,390,000 and $26,977,000, respectively.  The accumulated depreciation taken for Federal income tax purposes at December 31, 2007 and 2006, is approximately $9,854,000 and $15,185,000, respectively.



Note I  Contingencies



In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its Managing General Partner and several of their affiliated partnerships and corporate entities. The action purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that are named as nominal defendants, challenging, among other things, the acquisition of interests in certain Managing General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities that were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, during the third quarter of 2001, a complaint captioned Heller v. Insignia Financial Group (the "Heller action") was filed against the same defendants that are named in the Nuanes action. On or about August 6, 2001, plaintiffs filed a first amended complaint. The Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 28, 2002, the trial court granted defendants motion to strike the complaint.  Plaintiffs took an appeal from this order.



On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. On June 13, 2003, the court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal (the Appeal) seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On May 4, 2004, the Objector filed a second appeal challenging the courts use of a referee and its order requiring Objector to pay those fees.



On March 21, 2005, the Court of Appeals issued opinions in both pending appeals.  With regard to the settlement and judgment entered thereto, the Court of Appeals vacated the trial courts order and remanded to the trial court for further findings on the basis that the state of the record is insufficient to permit meaningful appellate review.  The matter was transferred back to the trial court on June 21, 2005.  With regard to the second appeal, the Court of Appeals reversed the order requiring the Objector to pay referee fees. With respect to the related Heller appeal, on July 28, 2005, the Court of Appeals reversed the trial courts order striking the first amended complaint.



On August 18, 2005, Objector and his counsel filed a motion to disqualify the trial court based on a peremptory challenge and filed a motion to disqualify for cause on October 17, 2005, both of which were ultimately denied and/or struck by the trial court.  On or about October 13, 2005 Objector filed a motion to intervene and on or about October 19, 2005 filed both a motion to take discovery relating to the adequacy of plaintiffs as derivative representatives and a motion to dissolve the anti-suit injunction in connection with settlement.  On November 14, 2005, Plaintiffs filed a Motion For Further Findings pursuant to the remand ordered by the Court of Appeals. Defendants joined in that motion.  On February 3, 2006, the Court held a hearing on the various matters pending before it and ordered additional briefing from the parties and Objector. On June 30, 2006, the trial court entered an order confirming its approval of the class action settlement and entering judgment thereto after the Court of Appeals had remanded the matter for further findings.  The substantive terms of the settlement agreement remain unchanged.  The trial court also entered supplemental orders on July 1, 2006, denying Objectors Motion to File a Complaint in Intervention, Objectors Motion for Leave of Discovery and Objectors Motion to Dissolve the Anti-Suit Injunction.  Notice of Entry of Judgment was served on July 10, 2006.



On August 31, 2006, the Objector filed a Notice of Appeal to the Courts June 30, 2006 and July 1, 2006 orders. The matter was argued and submitted and the Court of Appeal issued an opinion on February 20, 2008 affirming the order approving the settlement and judgment entered thereto. On March 12, 2008, the Court of Appeal denied Appellants Petition for Re-Hearing. Appellant has until April 1, 2008 to file a Petition for Review with the California Supreme Court.





The Managing General Partner does not anticipate that any costs to the Partnership, whether legal or settlement costs, associated with these cases will be material to the Partnerships overall operations.



The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business.



Environmental



Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its properties, the Partnership could potentially be liable for environmental liabilities or costs associated with its properties.



Mold



The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements.  The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure.  Affiliates of the Managing General Partner have implemented policies, procedures, third-party audits and training and the Managing General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents.  To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions.  Because the law regarding mold is unsettled and subject to change the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnerships consolidated financial condition or results of operations.







ITEM 8.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



None.



Item 8A.

Controls and Procedures



(a)

Disclosure Controls and Procedures



The Partnerships management, with the participation of the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnerships principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnerships disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnerships principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnerships disclosure controls and procedures are effective.



Managements Report on Internal Control Over Financial Reporting



The Partnerships management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the principal executive and principal financial officers of the Managing General Partner, who are the equivalent of the Partnerships principal executive officer and principal financial officer, respectively, and effected by the Partnerships management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:



·

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets;



·

provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the Partnerships management; and



·

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



The Partnerships management assessed the effectiveness of the Partnerships internal control over financial reporting as of December 31, 2007.  In making this assessment, the Partnerships management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.



Based on their assessment, the Partnerships management concluded that, as of December 31, 2007, the Partnerships internal control over financial reporting is effective.



This annual report does not include an attestation report of the Partnerships registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to the attestation by the Partnerships registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Partnership to provide only managements report in this annual report.



(b)

Changes in Internal Control Over Financial Reporting.



There have been no significant changes in the Partnerships internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2007 that have materially affected, or are reasonably likely to materially affect, the Partnerships internal control over financial reporting.



Item 8B.

Other Information



On March 27, 2008, AIMCO announced that Scott W. Fordham, Senior Vice President and Chief Accounting Officer of AIMCO and the Managing General Partner, has announced his resignation.  Mr. Fordham has chosen to leave AIMCO to return to Texas to pursue an opportunity as chief accounting officer with an office REIT led by Tom August, the former CEO of Prentiss Properties Trust (Prentiss), with whom Mr. Fordham served as senior vice president and chief accounting officer prior to Prentisss 2006 merger with Brandywine Realty Trust.



Mr. Fordham will remain with AIMCO through the first quarter close in order to ensure an orderly transition.













PART III



Item 9.

Directors, Executive Officers, Promoters Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act



Davidson Income Real Estate, L.P. (the Partnership or the Registrant) has no officers or directors.  Davidson Diversified Properties, Inc. (the Managing General Partner) manages and controls substantially all of the Partnerships affairs and has general responsibility in all matters affecting its business.



The names and ages of, as well as the positions and offices held by, the present directors and officers of the Managing General Partner are set forth below. There are no family relationships between or among any officers or directors.



|                  |     |                                                          
|----------------- | --- | ---------------------------------------------------------
|Name              | Age | Position                                                 
|                  |     |                                                          
|Martha L. Long    | 48  | Director and Senior Vice President                       
|Harry G. Alcock   | 45  | Director and Executive Vice President                    
|Timothy Beaudin   | 49  | Executive Vice President and Chief Development Officer   
|Lisa R. Cohn      | 39  | Executive Vice President, General Counsel and Secretary  
|Patti K. Fielding | 44  | Executive Vice President  Securities and Debt; Treasurer
|Thomas M. Herzog  | 45  | Executive Vice President and Chief Financial Officer     
|Scott W. Fordham  | 40  | Senior Vice President and Chief Accounting Officer       
|Stephen B. Waters | 46  | Vice President                                           



Martha L. Long has been a Director and Senior Vice President of the Managing General Partner since February 2004.  Ms. Long has been with AIMCO since October 1998 and has served in various capacities.  From 1998 to 2001, Ms. Long served as Senior Vice President and Controller of AIMCO and the Managing General Partner.  During 2002 and 2003, Ms. Long served as Senior Vice President of Continuous Improvement for AIMCO.



Harry G. Alcock was appointed as a Director of the Managing General Partner in October 2004 and was appointed Executive Vice President of the Managing General Partnerin February 2004 and has been Executive Vice President of AIMCO since October 1999.  Mr. Alcock has had responsibility for acquisition and financing activities of AIMCO since July 1994, serving as Vice President from July 1996 to October 1997 and as Senior Vice President from October 1997 to October 1999. Mr. Alcock focuses on transactions related to AIMCOs portfolio of properties in the western portion of the United States.



Timothy Beaudin was appointed Executive Vice President and Chief Development Officer of the Managing General Partner and AIMCO in October 2005.  Prior to this time, beginning in 1995, Mr. Beaudin was with Catellus Development Corporation, a San Francisco, California-based real estate investment trust.  During his last five years at Catellus, Mr. Beaudin served as Executive Vice President, with management responsibility for development, construction and asset management.



Lisa R. Cohn was appointed Executive Vice President, General Counsel and Secretary of the Managing General Partner and AIMCO in December 2007.  From January 2004 to December 2007, Ms. Cohn served as Senior Vice President and Assistant General Counsel of AIMCO.  Ms. Cohn joined AIMCO in July 2002 as Vice President and Assistant General Counsel.  Prior to joining AIMCO, Ms. Cohn was in private practice with the law firm of Hogan and Hartson LLP.



Patti K. Fielding was appointed Executive Vice President - Securities and Debt of the Managing General Partner in February 2004 and of AIMCO in February 2003.  Ms. Fielding was appointed Treasurer of AIMCO and the Managing General Partner in January 2005.  Ms. Fielding is responsible for debt financing and the treasury department.  Ms. Fielding previously served as Senior Vice President - Securities and Debt of AIMCO from January 2000 to February 2003.  Ms. Fielding joined AIMCO in February 1997 as a Vice President.



Thomas M. Herzog was appointed Chief Financial Officer of the Managing General Partner and AIMCO in November 2005 and was appointed Executive Vice President of the Managing General Partner and AIMCO in July 2005.  In January 2004, Mr. Herzog joined AIMCO as Senior Vice President and Chief Accounting Officer and of the Managing General Partner in February 2004.  Prior to joining AIMCO in January 2004, Mr. Herzog was at GE Real Estate, serving as Chief Accounting Officer & Global Controller from April 2002 to January 2004 and as Chief Technical Advisor from March 2000 to April 2002.  Prior to joining GE Real Estate, Mr. Herzog was at Deloitte & Touche LLP from 1990 to 2000.



Scott W. Fordham was appointed Senior Vice President and Chief Accounting Officer in January 2007 of the Managing General Partner and AIMCO. Prior to joining AIMCO, Mr. Fordham served as Vice President and Chief Accounting Officer of Brandywine Realty Trust from January 2006 through December 2006. Prior to the merger of Prentiss Properties Trust with Brandywine Realty Trust, Mr. Fordham served as Senior Vice President and Chief Accounting Officer of Prentiss Properties Trust and was in charge of the corporate accounting and financial reporting groups. Prior to joining Prentiss Properties Trust in 1992, Mr. Fordham worked in public accounting with PricewaterhouseCoopers LLP.



Stephen B. Waters was appointed Vice President of the Managing General Partner and AIMCO in April 2004.  Mr. Waters previously served as a Director of Real Estate Accounting since joining AIMCO in September 1999.  Mr. Waters has responsibility for partnership accounting with AIMCO and serves as the principal financial officer of the Managing General Partner.



One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act: Further, one or more of the above persons are also officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act.



The board of directors of the Managing General Partner does not have a separate audit committee. As such, the board of directors of the Managing General Partner fulfills the functions of an audit committee. The board of directors has determined that Martha L. Long meets the requirement of an "audit committee financial expert".



The directors and officers of the Managing General Partner with authority over the Partnership are all employees of subsidiaries of AIMCO. AIMCO has adopted a code of ethics that applies to such directors and officers that is posted on AIMCO's website (www.AIMCO.com). AIMCO's website is not incorporated by reference to this filing.



Item 10.

Executive Compensation



No remuneration was paid by the Partnership to any officer or director of the Managing General Partner during the year ended December 31, 2007.













Item 11.

Security Ownership of Certain Beneficial Owners and Management



Except as noted below, no person or entity was known by the Partnership to be the beneficial owners of more than 5% of the Limited Partnership Units of the Partnership as of December 31, 2007.



|                                |                 |           
|------------------------------- | --------------- | ----------
|                                |                 | Percentage
|Entity                          | Number of Units | of Total  
|                                |                 |           
|AIMCO IPLP, L.P. (1)            | 570             | 2.13%     
|(an affiliate of AIMCO)         |                 |           
|AIMCO Properties, L.P. (2)      | 8,806.50        | 32.89%    
|(an affiliate of AIMCO)         |                 |           
|Cooper River Properties (1)     | 3,830           | 14.30%    
|(an affiliate of AIMCO)         |                 |           
|                                |                 |           
|Hospital Corporation of America | 3,000           | 11.20%    
|201 West Main Street            |                 |           
|Louisville, KY 40202            |                 |           



(1)

Entity is indirectly ultimately owned by AIMCO. Its business address is 55 Beattie Place, Greenville, SC 29602.



(2)

Entity is indirectly ultimately controlled by AIMCO. Its business address is 4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado 80237.



As of December 31, 2007, no director or officer of the Managing General Partner owns, nor do the directors or officers as a whole, own more than 1% of the Partnerships Units. No such director or officer had any right to acquire beneficial ownership of additional Units of the Partnership.



Item 12.

Certain Relationships and Related Transactions, and Director Independence



The Partnership has no employees and depends on the Managing General Partner and its affiliates for the management and administration of all Partnership activities.  The Partnership Agreement provides for (i) payments to affiliates for property management services and (ii) for reimbursement of certain expenses incurred by affiliates on behalf of the Partnership.



Affiliates of the Managing General Partner receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $162,000 and $183,000 for the years ended December 31, 2007 and 2006, respectively, which is included in operating expenses and loss from discontinued operations.



An affiliate of the Managing General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $138,000 and $173,000 for the years ended December 31, 2007 and 2006, respectively, which is included in general and administrative expenses, investment properties and gain on sale of discontinued operations. The portion of these reimbursements included in investment properties and gain on sale of discontinued operations for the years ended December 31, 2007 and 2006 are construction management services provided by an affiliate of the Managing General Partner of approximately $37,000 and $75,000, respectively.



During the years ended December 31, 2007 and 2006, AIMCO Properties, L.P., an affiliate of the Managing General Partner, advanced the Partnership approximately $123,000 and $424,000, respectively, to pay accounts payable and real estate taxes at Covington Pointe Apartments and accounts payable at Lakeside Apartments during 2007 and to fund capital improvements and pay accounts payable at Bexley House Apartments and Covington Pointe Apartments during 2006. During the year ended December 31, 2007, approximately $3,560,000 in outstanding loans and accrued interest were paid to AIMCO Properties, L.P. from the net proceeds received from the sale of Lakeside Apartments. There were no payments made during the year ended December 31, 2006. Interest on the advances is charged at prime plus 1%. Interest expense on advances from AIMCO Properties, L.P. was approximately $157,000 and $276,000 for the years ended December 31, 2007 and 2006, respectively. At December 31, 2007 there were no advances or associated accrued interest owed to AIMCO Properties, L.P. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances.  For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.



The Partnership Agreement provides for payment of a fee to the Managing General Partner for managing the affairs of the Partnership.  The fee is 2% of adjusted cash from operations, as defined in the Partnership Agreement.  The fee is payable only after the Partnership has distributed, to all limited partners, adjusted cash from operations in any year equal to 10% of their adjusted invested capital as defined in the partnership agreement.  No fees were earned or are payable for the years ended December 31, 2007 and 2006.



The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty, general liability and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the years ended December 31, 2007 and 2006, the Partnership was charged by AIMCO and its affiliates approximately $123,000 and $92,000, respectively, for insurance coverage and fees associated with policy claims administration.



In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 13,206.50 limited partnership units (the "Units") in the Partnership representing 49.32% of the outstanding Units at December 31, 2007.  A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers.  Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 49.32% of the outstanding Units, AIMCO and its affiliates are in a position to influence all voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.



Neither of the Managing General Partners directors is independent under the independence standards established for New York Stock Exchange listed companies as both directors are employed by the parent of the Managing General Partner.













Item 13.

Exhibits



See Exhibit Index.



Item 14.

Principal Accountant Fees and Services



The Managing General Partner has reappointed Ernst & Young LLP as independent auditors to audit the consolidated financial statements of the Partnership for 2008.  The aggregate fees billed for services rendered by Ernst & Young LLP for 2007 and 2006 are described below.



Audit Fees. Fees for audit services totaled approximately $52,000 and $46,000 for 2007 and 2006, respectively.  Fees for audit services also include fees for the reviews of the Partnerships Quarterly Reports on Form 10-QSB.



Tax Fees. Fees for tax services totaled approximately $15,000 and $12,000 for 2007 and 2006, respectively.











SIGNATURES







In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



| |                                             
| | --------------------------------------------
| | DAVIDSON INCOME REAL ESTATE, L.P.           
| |                                             
| | By:   Davidson Diversified Properties, Inc.,
| | Managing General Partner                    
| |                                             
| | By:   /s/Martha L. Long                     
| | Martha L. Long                              
| | Senior Vice President                       
| |                                             
| | By:   /s/Stephen B. Waters                  
| | Stephen B. Waters                           
| | Vice President                              
| |                                             
| | Date: March 31, 2008                        



In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Partnership and in the capacities and on the dates indicated.



|                     |                        |                     
|-------------------- | ---------------------- | --------------------
|/s/Harry G. Alcock   | Director and Executive | Date: March 31, 2008
|Harry G. Alcock      | Vice President         |                     
|                     |                        |                     
|/s/Martha L. Long    | Director and Senior    | Date: March 31, 2008
|Martha L. Long       | Vice President         |                     
|                     |                        |                     
|/s/Stephen B. Waters | Vice President         | Date: March 31, 2008
|Stephen B. Waters    |                        |                     













|                               
|-------------------------------
|DAVIDSON INCOME REAL ESTATE, LP
|EXHIBIT INDEX                  





Exhibit





3

Agreement of Limited Partnership is incorporated by reference to Exhibit A to the Prospectus of the Registrant dated July 26, 1985 as filed with the Commission pursuant to Rule 424(b) under the Act.



3A

Amendment to Partnership Agreement dated October 1, 1985 is incorporated by reference to Exhibit 3A to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987.



4

Certificate of Limited Partnership dated April 29, 1985 is incorporated by reference to Exhibit 4 to the Registrant's Registration Statement on Form S-11 dated May 7, 1985.



4A

Certificate of Amendment to Certificate of Limited Partnership dated July 16, 1985 is incorporated by reference to Exhibit 4B in Amendment No. 1 to Registration Statement No. 2-97539, dated July 24, 1985.



10L

Contract for Sale of Real Estate for The Bexley House dated July 16, 1986 between Bexley House, Limited, an Ohio limited partnership and Tennessee Trust Company is incorporated by reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated September 30, 1986.



10M

Reinstatement and Amendment of Contract for Sale of Real Estate for The Bexley House dated September 4, 1986 between Bexley House, Limited, an Ohio limited partnership and Tennessee Trust Company, a Tennessee corporation, is incorporated by reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-K dated September 30, 1986.



10N

Amendment to Reinstated and Amended for Sale of Real Estate for The Bexley House dated September 19, 1986 between Bexley House, Limited, an Ohio limited partnership and Tennessee Trust Company, a Tennessee corporation, is incorporated by reference to Exhibit 10(c) to the Registrant's Current Report on Form 8-K dated September 30, 1986.



10O

Assignment of Contract for Sale of Real Estate for The Bexley House dated September 30, 1986 between Tennessee Trust Company and the Registrant is incorporated by reference to Exhibit 10(d) to the Registrant's Current Report on Form 8-K dated September 30, 1986.



10P

Limited Warranty Deed dated September 28, 1986 between Bexley House, Ltd., an Ohio limited partnership and the Registrant is incorporated by reference to Exhibit 10(e) to the Registrant's Current Report on Form 8-K dated September 30, 1986.



10Q

Contract for Sale of Real Estate for Covington Pointe Apartments dated January 20, 1987 between F.G.M.C. Investment Corp., a Texas corporation Tennessee Trust Company, a Tennessee corporation, is incorporated by reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated March 10, 1987.



10R

Amendment to Contract for Purchase of Real Estate for Covington Pointe Apartments dated January 23, 1987 between F.G.M.C. Investment Corp., a Texas corporation Tennessee Trust Company, a Tennessee corporation, is incorporated by reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-K dated March 10, 1987.



10S

Assignment of Contract for Purchase of Real Estate for Covington Pointe Apartments dated March 2, 1987 between Tennessee Trust Company and the Registrant is incorporated by reference to Exhibit 10(c) to the Registrant's Current Report on Form 8-K dated March 10, 1987.



10T

Contract for Purchase of Real Estate for Phase I of Sterling Crest Apartments dated March 10, 1987 between Sterling Crest Development Partners, Ltd., a Georgia limited partnership, and Tennessee Trust Company, a Tennessee corporation, is incorporated by reference to Exhibit 10(d) to the Registrant's Current Report on Form 8-K dated March 10, 1987.



10Y

Sterling Crest Joint Venture Agreement dated June 29, 1987 between the Registrant and Freeman Georgia Ventures, Inc. is incorporated by reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-K dated June 30, 1987.



10Z

Assignment of Contract for Purchase of Real Estate for Phase I of Sterling Crest Apartments dated June 29, 1987 is incorporated by reference to Exhibit 10(c) to the Registrant's Current Report on Form 8-K dated June 30, 1987.



10AA

Warranty Deed dated June 30, 1987 between Sterling Crest Development Partners, Ltd. and Sterling Crest Joint Venture, is incorporated by reference to Exhibit 10(d) to the Registrant's Current Report on Form 8-K dated June 30, 1987.



10DD

Contract for Purchase of Real Estate for Phase II of Sterling Crest Apartments dated March 10, 1987 between Sterling Crest Development Partners, Ltd. and Tennessee Trust Company is incorporated by reference to Exhibit 10(a) to the Registrant's Report on Form 8-K dated December 29, 1987.



10FF

Assignment of Contract for Purchase of Real Estate and Tri-Party Agreement dated November 4, 1987 between Tennessee Trust Company and Sterling Crest Joint Venture relating to Sterling Crest Apartments, is incorporated by reference to Exhibit 10(c) to the Registrant's Report on Form 8-K dated December 29, 1987.



10GG

Amended and Restated Sterling Crest Joint Venture Agreement dated June 29, 1987 among the Registrant, Freeman Georgia Ventures, Inc., and Freeman Growth Plus, L.P., is incorporated by reference to Exhibit 10(d) to the Registrant's Report on Form 8-K dated December 29, 1987.



10RR

Multifamily Note dated December 15, 2000, between Davidson Income Real Estate, L.P., a Delaware limited partnership and Reilly Mortgage Group, Inc., a District of Columbia corporation, related to Bexley House Apartments, incorporated by reference to Form 10-KSB dated March 30, 2001.



10TT

Contracts related to refinancing of debt of Covington Pointe Apartments:



(a)

Multifamily Note dated June 26, 2003 between AIMCO Covington Pointe, L.P., a Delaware limited partnership, and Keycorp Real Estate Capital Markets, Inc., an Ohio corporation, incorporated by reference to Form 8-K dated June 26, 2003.



(b)

Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated June 26, 2003 between AIMCO Covington Pointe, L.P., a Delaware limited partnership, and Keycorp Real Estate Capital Markets, Inc., an Ohio corporation, incorporated by reference to Form 8-K dated June 26, 2003.



(c)

Replacement Reserve and Security Agreement dated June 26, 2003 between AIMCO Covington Pointe, L.P., a Delaware limited partnership, and Keycorp Real Estate Capital Markets, Inc., an Ohio corporation, incorporated by reference to Form 8-K dated June 26, 2003.



10VV

Contracts related to sale of Lakeside Apartments



(a)

Purchase and Sale Contract between Davidson Income Real Estate, L.P., a Delaware Limited Partnership, and the affiliated Selling Partnerships and Northview Realty Group, Inc., a Canadian corporation, dated May 23, 2007. Filed with Current Report on Form 8-K of Registrant dated May 23, 2007 and incorporated herein by reference.



(b)

Amendment to Purchase and Sale Contract between Davidson Income Real Estate, L.P., a Delaware Limited Partnership, and the affiliated Selling Partnerships and Northview Realty Group, Inc., a Canadian corporation, dated June 5, 2007. Filed with Current Report on Form 8-K of Registrant dated June 13, 2007 and incorporated herein by reference.



(c)

Second Amendment to Purchase and Sale Contract between Davidson Income Real Estate, L.P., a Delaware Limited Partnership, and the affiliated Selling Partnerships and Northview Realty Group, Inc., a Canadian corporation, dated June 6, 2007. Filed with Current Report on Form 8-K of Registrant dated June 13, 2007 and incorporated herein by reference.



(d)

Third Amendment to and Reinstatement of Purchase and Sale Contract between Davidson Income Real Estate, L.P., a Delaware Limited Partnership,  and the affiliated Selling Partnerships and Northview Realty Group, Inc., a Canadian corporation, dated June 15, 2007. Filed with Current Report on Form 8-K of Registrant dated June 13, 2007 and incorporated herein by reference.



31.1

Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



31.2

Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



32.1

Certification of equivalent of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



99A

Agreement of Limited Partnership for Davidson IRE GP Limited Partnership between Davidson Diversified Properties, Inc. and Davidson Income Real Estate, L.P. entered into on September 15, 1993 is incorporated by reference to Exhibit 99A to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1993.



99B

Agreement of Limited Partnership for Davidson IRE Associates, L.P. between Davidson IRE GP Limited Partnership and Davidson Income Real Estate, L.P. is incorporated by reference to Exhibit 99B to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1993.



99C

Agreement of Limited Partnership for Bexley House L.P. between Davidson Income GP Limited Partnership and Davidson Income Real Estate, L.P. entered into on October 13, 1993 is incorporated by reference to Exhibit 99C to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992.