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|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



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|-------------------------------------------
|For the fiscal year ended December 31, 2006



[ ]

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



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|----------------------------------------------------
|For the transition period from _________to _________
|                                                    
|Commission file number 0-13530                      
|                                                    
|DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.            
|(Name of small business issuer in its charter)      



|                                |                     
|------------------------------- | --------------------
|Delaware                        | 62-1181565          
|(State or other jurisdiction of | (I.R.S. Employer    
|incorporation or organization)  | (Identification No.)



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|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:
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|None                                                          
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|Securities registered under Section 12(g) of the Exchange Act:
|                                                              
|Units of Limited Partnership Interest                         
|(Title of class)                                              



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 registrant'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.  $1,018,000



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, 2006.  No market exists for the Limited Partnership interests of the Registrant, and, therefore, no aggregate market value can be determined.



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|-----------------------------------
|DOCUMENTS INCORPORATED BY REFERENCE
|None                               















The matters discussed in this report contain certain forward-looking statements, including, without limitation, statements regarding future financial performance and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors including, without limitation: national and local economic conditions; the terms of governmental regulations that affect the Registrant and interpretations of those regulations; the competitive environment in which the Registrant operates; financing risks, including the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including variations of real estate values and the general economic climate in local markets and competition for tenants in such markets; litigation, including costs associated with prosecuting and defending claims and any adverse outcomes, and possible environmental liabilities. Readers should carefully review the Registrant's financial statements and the notes thereto, as well as the risk factors described in the documents the Registrant files from time to time with the Securities and Exchange Commission.



PART I



Item 1.

Description of Business



Davidson Diversified Real Estate I, L.P. (the "Registrant" or "Partnership") is a Delaware limited partnership organized in January 1983.  The general partners of the Partnership are Davidson Diversified Properties, Inc., a Tennessee corporation (the "Managing General Partner"); Diversified Equities, Limited, a Tennessee limited partnership (the "Associate General Partner"); and David W. Talley (the "Individual General Partner") (collectively, the "General Partners"). The Managing General Partner is a wholly-owned 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, 2007, unless terminated prior to such date.



The offering of the Partnership's limited partnership units (the "Units") commenced on November 16, 1983, and terminated on September 14, 1984.  The Partnership received gross proceeds from the offering of $15,008,000 and net proceeds of $13,507,200. Since its initial offering, the Partnership has not received, nor are limited partners required to make, additional capital contributions.



The Partnership's business is to own and operate existing residential real estate properties for investment. All of the net proceeds of the offering were invested in six properties, five of which had been sold or foreclosed upon prior to 2003.  The Partnership continues to own and operate one investment property as of December 31, 2006.  See "Item 2. Description of Property".



The Partnership receives income from its property and is responsible for operating expenses, capital improvements and debt service payments under a mortgage obligation secured by the property.  The Partnership financed its property through non-recourse debt.  Therefore, if the Partnership were to default on its loan, the lender, with certain exceptions, can generally only look to the subject property for recovery of amounts due.



The Partnership has no employees.  Management and administrative services are provided by the Managing General Partner and agents retained by the Managing General Partner. An affiliate of the Managing General Partner provided such management services for the years ended December 31, 2006 and 2005.















Risk Factors



The real estate business in which the Partnership is engaged is highly competitive. There are other residential properties within the market area of the Partnership's property. The number and quality of competitive properties, including those which may be managed by an affiliate of the Managing General Partner in such market area, could have a material effect on the rental market for apartments at the Partnership's property and the rents that may be charged for such apartments. While the Managing General Partner and its affiliates own and/or control a significant number of apartment units in the United States, such units represent an insignificant percentage of the total apartment units in the United States and competition for the apartments is local.



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 property, or restrict renovations of the property.  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 Managing General Partner believes that the Partnership's property is substantially in compliance with present requirements, the Partnership may incur unanticipated expenses to comply with the ADA and the FHAA.



Both the income and expenses of operating the property owned by the Partnership are subject to factors outside of the Partnership's control, such as changes in the supply and demand of similar properties resulting from various market conditions, increases/decreases in unemployment or population shifts, changes in the availability of permanent mortgage funds, changes in zoning laws, or changes in patterns or needs of users.  In addition, there are risks inherent in owning and operating residential properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership.



From time to time, the Federal Bureau of Investigation, or FBI, and the United States Department of Homeland Security issue alerts regarding potential terrorist threats involving apartment buildings. Threats of future terrorist attacks, such as those announced by the FBI and the Department of Homeland Security, could have a negative effect on rent and occupancy levels at the Partnerships property. The effect that future terrorist activities or threats of such activities could have on the Partnerships operations is uncertain and unpredictable. If the Partnership were to incur a loss at the property as a result of an act of terrorism, the Partnership could lose all or a portion of the capital invested in the property, as well as the future revenue from the property.



There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the property owned by the Partnership.



The Partnership monitors its property for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos.  In certain cases environmental testing has been performed which resulted in no material adverse conditions or liabilities.  In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean up site.



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



Item 2.

Description of Property



The following table sets forth the Partnership's investment in property:



|                       |          |                            |          
|---------------------- | -------- | -------------------------- | ---------
|                       | Date of  |                            |          
|Property               | Purchase | Type of Ownership          | Use      
|                       |          |                            |          
|Versailles on the Lake |          |                            |          
|Apartments             | 04/05/84 | Fee ownership subject to a | Apartment
|Ft. Wayne, Indiana     |          | first mortgage             | 156 units



Schedule of Property



Set forth below for the Partnership's property 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)
|                  |                |              |             |                |          
|Versailles on the |                |              |             |                |          
|Lake Apartments   | $6,174         | $4,675       | 5-30 yrs    | S/L            | $1,296   



See "Note A  Organization and Summary of Significant Accounting Policies" to the 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 loan encumbering the Partnership's property.



|                       |                |          |           |          |               
|---------------------- | -------------- | -------- | --------- | -------- | --------------
|                       | Principal      |          |           |          | Principal     
|                       | Balance At     | Stated   |           |          | Balance       
|                       | December 31,   | Interest | Period    | Maturity | Due At        
|Property               | 2006           | Rate     | Amortized | Date     | Maturity (2)  
|                       | (in thousands) |          |           |          | (in thousands)
|Versailles on the Lake |                |          |           |          |               
|Apartments             |                |          |           |          |               
|1st mortgage           | $2,180         | (1)      | 30 yrs    | 9/15/07  | $2,139        



(1)

Adjustable rate based on the Fannie Mae discounted mortgage-backed security index plus 105 basis points.  The rate at December 31, 2006 was 6.30%.



(2)

See Note B  Mortgage Note Payable to the financial statements included in "Item 7. Financial Statements" for information with respect to the Partnership's ability to prepay the loan and other specific details about the loan.



Rental Rates and Occupancy



Average annual rental rate and occupancy for 2006 and 2005 for the property are as follows:



|                                  |                |           |      |     
|--------------------------------- | -------------- | --------- | ---- | ----
|                                  | Average Annual | Average  
|                                  | Rental Rates   | Occupancy
|                                  | (per unit)     |           |     
|Property                          | 2006           | 2005      | 2006 | 2005
|                                  |                |           |      |     
|Versailles on the Lake Apartments | $5,986         | $5,858    | 96%  | 96% 



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



Real Estate Taxes and Rate



Real estate taxes and rate in 2006 for the property were as follows:



|                                  |                |      
|--------------------------------- | -------------- | -----
|                                  | 2006           | 2006 
|                                  | Taxes          | Rate 
|                                  | (in thousands) |      
|                                  |                |      
|Versailles on the Lake Apartments | $  90*         | 2.59%



*Amount per 2005 billings.  Taxes are paid a year in arrears.



Capital Improvements



Versailles on the Lake Apartments



During the year ended December 31, 2006, the Partnership completed approximately $465,000 of capital improvements at the property, consisting primarily of roof replacement, parking area upgrades, light fixtures, garage and carport improvements, air conditioning upgrades, and floor covering replacement. These improvements were funded from operations 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 2007. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.



Capital expenditures will be incurred only to the extent of cash available from operations, Partnership reserves or advances from an affiliate 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. On December 14, 2006, Objector filed his Appellants Brief. The Partnership and its affiliates, as well as counsel of the Settlement Class, have not yet filed their briefs in response.



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.



AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, are defendants in a lawsuit alleging that they willfully violated the Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. The complaint, filed in the United States District Court for the District of Columbia, attempts to bring a collective action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call." Additionally, the complaint alleges AIMCO Properties, L.P. and NHP Management Company failed to comply with the FLSA in compensating maintenance workers for time that they worked in excess of 40 hours in a week.   In June 2005 the court conditionally certified the collective action on both the on-call and overtime issues.  Approximately 1,049 individuals opted in to the class. The defendants moved to decertify the collective action on both issues and that issue is now fully briefed.  The defendants anticipate that the Court will soon set oral argument on the defendants decertification motion.  Because the court denied plaintiffs motion to certify state subclasses, in September 2005, the plaintiffs filed a class action with the same allegations in the Superior Court of California (Contra Costa County), and in November 2005 in Montgomery County Maryland Circuit Court.  The California and Maryland cases have been stayed pending the outcome of the decertification motion in the District of Columbia case.  Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the Managing General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnerships financial condition or results of operations.



Item 4.

Submission of Matters to a Vote of Security Holders



During the quarter ended December 31, 2006, 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, offered and sold 751.84 Limited Partnership Units (the Units) aggregating $15,008,000. As of December 31, 2006, there were 544 holders of record owning an aggregate of 751.59 Units.  Affiliates of the Managing General Partner owned 339.45 Units or 45.16% at December 31, 2006.



There were no distributions to the partners during the years ended December 31, 2006 and 2005. Future cash distributions will depend on the levels of net cash generated from operations and the timing of the debt maturity, refinancing, and/or property sale. The Partnership's cash available for distribution is reviewed on a monthly basis. In light of the amounts accrued and payable to affiliates of the Managing General Partner at December 31, 2006, there can be no assurance that the Partnership will generate sufficient funds from operations after required capital improvements to permit any distributions to its partners in 2007 or subsequent periods.  See Item 2. Description of Property  Capital Improvements for information relating to anticipated capital expenditures at the property.



In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 339.45 Units in the Partnership representing 45.16% of the outstanding Units at December 31, 2006.  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 45.16% of the outstanding Units, AIMCO and its affiliates are in a position to influence all such 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 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 property, interest rates on mortgage loans, costs incurred to operate the investment property, 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 its investment property 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 impact the Partnerships financial results.



Results of Operations



The Partnerships net loss for the year ended December 31, 2006 was approximately $278,000 as compared to a net loss of approximately $190,000 for the year ended December 31, 2005.  The increase in net loss is due to an increase in total expenses, partially offset by an increase in total revenues.  The increase in total expenses is due to increases in operating, depreciation and interest expenses.  General and administrative and property tax expenses remained relatively constant for the comparable periods.  The increase in operating expenses is primarily due to increases in maintenance supplies, training and travel expenses and cleanup costs related to minor flooding which affected three units at the Partnerships investment property.  The increase in depreciation expense is due to property improvements and replacements placed into service at the property during the past twelve months. The increase in interest expense is primarily due to an increase in the variable interest rate on the mortgage encumbering the property and an increase in interest expense on advances from an affiliate of the Managing General Partner as a result of a higher outstanding balance and an increase in the interest rate on such advances. Included in general and administrative expenses for the years ended December 31, 2006 and 2005 are management reimbursements to the Managing General Partner as allowed under the Partnership Agreement, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement.



The increase in total revenues is due to increases in both rental and other income.  The increase in rental income is due to an increase in the average rental rate at the Partnerships investment property.  The increase in other income is due to increases in resident utility reimbursements and lease cancellation fees at the property.



Liquidity and Capital Resources



At December 31, 2006, the Partnership had cash and cash equivalents of approximately $30,000, compared to approximately $51,000 at December 31, 2005.  The decrease in cash and cash equivalents of approximately $21,000 is due to approximately $449,000 of cash used in investing activities, partially offset by approximately $301,000 of cash provided by financing activities and approximately $127,000 of cash provided by operating activities. Cash used in investing activities consisted of property improvements and replacements. Cash provided by financing activities consisted of advances received from an affiliate of the Managing General Partner, partially offset by payments of principal made on the mortgage encumbering the Partnerships investment property. 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 property 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. For example, the Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures with regard to governance, disclosure, audit and other areas. In light of these changes, the Partnership expects that it will incur higher expenses related to compliance. 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 2007. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.



The capital expenditures will be incurred only if cash is available from operations, Partnership reserves, or advances from an affiliate 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.



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 Versailles on the Lake Apartments of approximately $2,180,000 is being amortized over 360 months with a balloon payment of approximately $2,139,000 due in September 2007. The Managing General Partner has the option to extend the maturity of this loan for another five years.  After that period, the Managing General Partner will attempt to refinance such indebtedness and/or sell the property prior to the maturity date.  If the property cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such property through foreclosure.



Pursuant to the Partnership Agreement, the term of the Partnership is scheduled to expire on December 31, 2007.  Accordingly, prior to such date the Partnership will need to either sell its investment property or extend the term of the Partnership.



There were no distributions to the partners during the years ended December 31, 2006 and 2005. Future cash distributions will depend on the levels of net cash generated from operations and the timing of the debt maturity, refinancing, and/or property sale. The Partnership's cash available for distribution is reviewed on a monthly basis. In light of the amounts accrued and payable to affiliates of the Managing General Partner at December 31, 2006, there can be no assurance that the Partnership will generate sufficient funds from operations after required capital improvements to permit any distributions to its partners in 2007 or subsequent periods.



Other



In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 339.45 Units in the Partnership representing 45.16% of the outstanding Units at December 31, 2006.  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 45.16% of the outstanding Units, AIMCO and its affiliates are in a position to influence all such 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 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 financial statements with useful and reliable information about the Partnerships operating results and financial condition.  The preparation of 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 Asset



Investment property is 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 the 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 property.  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 asset.



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.















Item 7.

Financial Statements



DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.



LIST OF FINANCIAL STATEMENTS



Report of Independent Registered Public Accounting Firm



Balance Sheet - December 31, 2006



Statements of Operations - Years ended December 31, 2006 and 2005



Statements of Changes in Partners' Deficit - Years ended December 31, 2006 and 2005



Statements of Cash Flows - Years ended December 31, 2006 and 2005



Notes to Financial Statements













Report of Independent Registered Public Accounting Firm





The Partners

Davidson Diversified Real Estate I, L.P.





We have audited the accompanying balance sheet of Davidson Diversified Real Estate I, L.P. as of December 31, 2006, and the related statements of operations, changes in partners' deficit, and cash flows for each of the two years in the period ended December 31, 2006.  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 financial position of Davidson Diversified Real Estate I, L.P. at December 31, 2006, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.







/s/ERNST & YOUNG LLP







Greenville, South Carolina

March 15, 2007















|                                        
|----------------------------------------
|DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
|                                        
|BALANCE SHEET                           
|(in thousands, except unit data)        
|                                        
|December 31, 2006                       







|                                          |          |        
|----------------------------------------- | -------- | -------
|Assets                                    |          |        
|Cash and cash equivalents                 |          | $    30
|Receivables and deposits                  |          | 332    
|Other assets                              |          | 41     
|Investment property (Notes B and E):      |          |        
|Land                                      | $   191  |        
|Buildings and related personal property   | 5,983    |        
|                                          | 6,174    |        
|Less accumulated depreciation             | (4,675)  | 1,499  
|                                          |          |        
|                                          |          | $1,902 
|Liabilities and Partners' Deficit         |          |        
|Liabilities                               |          |        
|Accounts payable                          |          | $    65
|Tenant security deposit liabilities       |          | 24     
|Accrued property taxes                    |          | 92     
|Other liabilities                         |          | 67     
|Due to affiliates (Note D)                |          | 1,072  
|Mortgage note payable (Note B)            |          | 2,180  
|                                          |          |        
|Partners' Deficit                         |          |        
|General partners                          | $   (42) |        
|Limited partners (751.59 units issued and |          |        
|outstanding)                              | (1,556)  | (1,598)
|                                          |          |        
|                                          |          | $1,902 



See Accompanying Notes to Financial Statements

















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







|                                             |                          |          
|-------------------------------------------- | ------------------------ | ---------
|                                             | Years Ended December 31,
|                                             | 2006                     | 2005     
|Revenues:                                    |                          |          
|Rental income                                | $    888                 | $    878 
|Other income                                 | 130                      | 102      
|Total revenues                               | 1,018                    | 980      
|                                             |                          |          
|Expenses:                                    |                          |          
|Operating                                    | 637                      | 587      
|General and administrative                   | 76                       | 79       
|Depreciation                                 | 294                      | 278      
|Interest                                     | 195                      | 131      
|Property taxes                               | 94                       | 95       
|Total expenses                               | 1,296                    | 1,170    
|                                             |                          |          
|Net loss (Note C)                            | $(278)                   | $(190)   
|                                             |                          |          
|Net loss allocated to general partners (5%)  | $    (14)                | $    (10)
|                                             |                          |          
|Net loss allocated to limited partners (95%) | (264)                    | (180)    
|                                             | $(278)                   | $(190)   
|                                             |                          |          
|Net loss per limited partnership unit        | $(351.26)                | $(239.49)



See Accompanying Notes to Financial Statements

















|                                          
|------------------------------------------
|DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.  
|                                          
|STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
|(in thousands, except unit data)          







|                               |             |          |          |         
|------------------------------ | ----------- | -------- | -------- | --------
|                               | Limited     |          |          |         
|                               | Partnership | General  | Limited  |         
|                               | Units       | Partners | Partners | Total   
|                               |             |          |          |         
|Original capital contributions | 751.84      | $1       | $15,008  | $15,009 
|                               |             |          |          |         
|Partners' deficit at           |             |          |          |         
|December 31, 2004              | 751.59      | $   (18) | $(1,112) | $(1,130)
|                               |             |          |          |         
|Net loss for the year ended    |             |          |          |         
|December 31, 2005              | --          | (10)     | (180)    | (190)   
|                               |             |          |          |         
|Partners' deficit at           |             |          |          |         
|December 31, 2005              | 751.59      | (28)     | (1,292)  | (1,320) 
|                               |             |          |          |         
|Net loss for the year ended    |             |          |          |         
|December 31, 2006              | --          | (14)     | (264)    | (278)   
|                               |             |          |          |         
|Partners' deficit at           |             |          |          |         
|December 31, 2006              | 751.59      | $(42)    | $(1,556) | $(1,598)



See Accompanying Notes to Financial Statements



















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







|                                                          |                          |         
|--------------------------------------------------------- | ------------------------ | --------
|                                                          | Years Ended December 31,
|                                                          | 2006                     | 2005    
|Cash flows from operating activities:                     |                          |         
|Net loss                                                  | $  (278)                 | $  (190)
|Adjustments to reconcile net loss to net cash provided by |                          |         
|operating activities:                                     |                          |         
|Depreciation                                              | 294                      | 278     
|Amortization of loan costs                                | 14                       | 14      
|Change in accounts:                                       |                          |         
|Receivables and deposits                                  | (10)                     | (23)    
|Other assets                                              | (3)                      | 36      
|Accounts payable                                          | 31                       | 16      
|Tenant security deposit liabilities                       | 7                        | 2       
|Due to affiliates                                         | 59                       | 44      
|Accrued property taxes                                    | 3                        | 8       
|Other liabilities                                         | 10                       | (23)    
|Net cash provided by operating activities                 | 127                      | 162     
|                                                          |                          |         
|Cash flows used in investing activities:                  |                          |         
|Property improvements and replacements                    | (449)                    | (173)   
|                                                          |                          |         
|Cash flows from financing activities:                     |                          |         
|Payments on mortgage note payable                         | (62)                     | (61)    
|Advances from affiliate                                   | 363                      | 84      
|Net cash provided by financing activities                 | 301                      | 23      
|                                                          |                          |         
|Net (decrease) increase in cash and cash equivalents      | (21)                     | 12      
|Cash and cash equivalents at beginning of year            | 51                       | 39      
|Cash and cash equivalents at end of year                  | $30                      | $51     
|Supplemental disclosure of cash flow information:         |                          |         
|Cash paid for interest                                    | $142                     | $95     
|Supplemental disclosure of non-cash activity:             |                          |         
|Property improvements and replacements included in        |                          |         
|accounts payable                                          | $16                      | $--     



At December 31, 2004, approximately $38,000, in property improvements and replacements were included in accounts payable and are included in property improvements and replacements for the year ended December 31, 2005.



See Accompanying Notes to Financial Statements



















|                                        
|----------------------------------------
|DAVIDSON DIVERSIFIED REAL ESTATE I, L.P.
|                                        
|NOTES TO FINANCIAL STATEMENTS           
|                                        
|December 31, 2006                       



Note A - Organization and Summary of Significant Accounting Policies



Organization: Davidson Diversified Real Estate I, L.P. (the "Partnership" or "Registrant"), is a Delaware limited partnership organized on January 14, 1983, to acquire and operate residential real estate properties.  As of December 31, 2006, the Partnership operates one residential property, located in Ft. Wayne, Indiana. The Partnership's managing general partner is Davidson Diversified Properties, Inc. (the "Managing General Partner"). 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, 2007 unless terminated prior to such date.



Allocations to Partners: Net loss from operations of the Partnership and taxable (loss) income are allocated 95% to the limited partners and 5% to the general partners. Distributions of available cash (cash flow) are allocated among the limited partners and the general partners in accordance with the Partnership Agreement.



Allocation of net income for tax purposes, arising from the occurrence of a sale or refinancing shall be allocated as follows:



First, an amount equal to the aggregate deficit in the capital accounts of the general and limited partners having deficits in their capital accounts shall be allocated to each such partner in the same ratio as the deficit such partner's capital account bears to the aggregate of all such partner's deficits.



Second, to the limited partners in an amount equal to the cash distributed to them from a sale or refinancing.



Third, the remainder, if any, 5% to the general partners and 95% to the limited partners.



Distributions of cash from sales or refinancings shall be distributed in the following order of priority:



First, to the limited partners, an amount which when added to all prior distributions of cash from sales or refinancings shall equal their original invested capital, plus an amount which, when added to all prior distributions to the limited partners (excluding distributions which are deducted in the calculation of adjusted invested capital), will equal 8% per annum cumulative noncompounded on their adjusted invested capital, commencing the last day of the calendar quarter in which each limited partner is admitted to the Partnership through the date of payment.



Second, to an affiliate of the general partners, an amount equal to its subordinated real estate commission, which fee is equal to the lesser of (i) 3% of the gross sales price of a property or (ii) one-half of the competitive commission, as defined, but may only be paid after the limited partners have received their priority distributions as discussed in the previous paragraph.



Third, 85% of the remaining cash from sales or refinancings to the limited partners and 15% of the remaining cash from sales or refinancings to the general partners.



Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the investment property and related personal property.  For Federal income tax purposes, the accelerated cost recovery method is used for real property over 19 years for additions after May 8, 1985, and before January 1, 1987.  As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, 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.



Investment Property: Investment property consists of one apartment complex and is 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 Accounting Standards (SFAS) 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 did not capitalize any costs related to interest, property taxes or operating costs during the years ended December 31, 2006 and 2005. 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, 2006 and 2005.



Cash and Cash Equivalents: Cash and cash equivalents includes 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 included approximately $25,000 at December 31, 2006 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 receivables and deposits. Deposits are refunded when the tenant vacates, provided the tenant has not damaged the unit and is current on rental payments.



Use of Estimates: The preparation of 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 financial statements and accompanying notes.  Actual results could differ from those estimates.



Advertising: The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was approximately $32,000 and $31,000 for the years ended December 31, 2006 and 2005, respectively.





Deferred Costs: At December 31, 2006, loan costs of approximately $68,000, net of accumulated amortization of approximately $59,000, are included in other assets and are being amortized over the term of the related loan agreement. Amortization expense for each of the years ended December 31, 2006 and 2005 was approximately $14,000 and is included in interest expense. Amortization expense is expected to be approximately $9,000 for 2007.



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.



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.



Fair Value of Financial Instruments: SFAS No. 107, "Disclosures about Derivative 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 approximates their fair value due to the short term maturity of these instruments.



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.



Recent Accounting Pronouncements: In May 2005, the Financial Accounting Standards Board issued SFAS No. 154 Accounting Changes and Error Corrections, which replaces APB Opinion No. 20 and SFAS No. 3, and changes the requirements for the accounting for and reporting of a change in accounting principle. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Partnership adopted SFAS No. 154 effective January 1, 2006. The adoption of SFAS No. 154 did not have a material effect on the Partnerships financial condition or results of operations.



In September 2006, the FASB issued 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 in the market in which the reporting entity transacts. 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. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Partnershipdoes not anticipate that the adoption of SFAS No. 157 will have a material effect on the Partnerships 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 has not yet determined whether it will elect the fair value option for any of its financial instruments.



Note B - Mortgage Note Payable



|                       |                |           |          |                |          
|---------------------- | -------------- | --------- | -------- | -------------- | ---------
|                       | Principal      | Monthly   |          |                | Principal
|                       | Balance At     | Payment   | Stated   |                | Balance  
|                       | December 31,   | Including | Interest | Maturity       | Due At   
|Property               | 2006           | Interest  | Rate     | Date           | Maturity 
|                       | (in thousands) |           |          | (in thousands)
|Versailles on the Lake |                |           |          |                |          
|Apartments             |                |           |          |                |          
|1st mortgage           | $2,180         | $11       | (1)      | 9/15/07        | $2,139   



(1)  Adjustable rate based on Fannie Mae discounted mortgage-backed security index plus 105 basis points. The rate at December 31, 2006 was 6.30%.



The mortgage is financed under a permanent credit facility ("Permanent Credit Facility").  The Permanent Credit Facility has a maturity of five years, with one five-year extension option. This Permanent Credit Facility also creates separate loans for each property that are not cross-collateralized or cross-defaulted with the other property loans. Each note under this Permanent Credit Facility begins as a variable rate loan with the option of converting to a fixed rate loan after three years. The interest rate on the variable rate loans is the Fannie Mae discounted mortgage-backed security index plus 105 basis points.  The rate was 6.30% at December 31, 2006 and resets monthly. Each loan automatically renews at the end of each month. In addition, monthly principal payments are required based on a 30-year amortization schedule, using the interest rate in effect during the first month that any property is in the Permanent Credit Facility. The loans are prepayable without penalty.



The mortgage note payable is non-recourse and is secured by pledge of the respective apartment property and by pledge of revenues from the property. The property may not be sold subject to existing indebtedness.



Scheduled principal payments on the mortgage note payable subsequent to December 31, 2006, are as follows (in thousands):



|     |       
|---- | ------
|2007 | $2,180



Note C - Income Taxes



The Partnership is classified as a partnership for Federal income tax purposes.  Accordingly, no provision for income taxes is made in the 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 loss and Federal taxable loss (in thousands, except per unit data):



|                                   |             |            
|---------------------------------- | ----------- | -----------
|                                   | 2006        | 2005       
|                                   |             |            
|Net loss as reported               | $     (278) | $     (190)
|Add (deduct):                      |             |            
|Depreciation differences           | 146         | 143        
|Unearned income                    | 3           | (12)       
|Other                              | 15          | (5)        
|Federal taxable loss               | $(114)      | $(64)      
|Federal taxable income per limited |             |            
|partnership unit (1)               | $422.48     | $133.40    



(1)

For 2006 and 2005, allocations under the Internal Revenue Code section 704(b) result in the limited partners being allocated a non-pro rata amount of taxable income or loss.



The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net liabilities at December 31, 2006 (in thousands):



|                                                |          
|----------------------------------------------- | ---------
|                                                | 2006     
|Net liabilities as reported                     | $ (1,598)
|Differences in basis of assets and liabilities: |          
|Buildings and land                              | 100      
|Accumulated depreciation                        | (303)    
|Other                                           | 53       
|Net liabilities - Federal tax basis             | $(1,748) 



Note D - 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.  Affiliates of the Managing General Partner provide property management services to the Partnership.  The Partnership Agreement provides for payments to affiliates for services and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership.



Affiliates of the Managing General Partner receive 5% of gross receipts from the Partnership's property as compensation for providing property management services. The Partnership paid to such affiliates approximately $50,000 and $48,000 for the years ended December 31, 2006 and 2005, respectively, which are included in operating expenses.



Affiliates of the Managing General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $84,000 and $56,000 for the years ended December 31, 2006 and 2005, respectively, which are included in general and administrative expenses and investment property. The portion of these reimbursements included in investment property for the years ended December 31, 2006 and 2005 are construction management services provided by an affiliate of the Managing General Partner of approximately $50,000 and $16,000, respectively. At December 31, 2006, approximately $65,000 was owed to affiliates for unpaid reimbursements, which are included in due to affiliates.



In accordance with the Partnership Agreement, during the years ended December 31, 2006 and 2005, an affiliate of the Managing General Partner advanced the Partnership approximately $363,000 and $84,000, respectively, to fund operating expenses and capital improvements at Versailles on the Lake Apartments. Interest is charged at the prime rate plus 1% (9.25% as of December 31, 2006).  Interest expense on advances from an affiliate of the Managing General Partner for the years ended December 31, 2006 and 2005 was approximately $40,000 and $16,000, respectively. At December 31, 2006, the amount of the outstanding advances and accrued interest was approximately $686,000 and is included in due to affiliates. Subsequent to December 31, 2006, an affiliate of the Managing General Partner advanced the Partnership approximately $23,000 to fund operating expenses at the Partnerships investment property.



The Partnership is liable to an affiliate of the Managing General Partner for real estate commissions in the amounts of approximately $125,000 for Revere Village Apartments and approximately $196,000 for Essex Apartments, both of which were sold in previous years. The total amount of approximately $321,000 is included on the balance sheet in due to affiliates. Payment of the commissions will not be made to the affiliate until the limited partners have received distributions equal to their original invested capital, plus 8% per annum cumulative non-compounded on their adjusted invested capital commencing on the last day of the calendar quarter in which each limited partner was admitted to the Partnership through the date of payment.



The Partnership insures its property 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 property above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the years ended December 31, 2006 and 2005, the Partnership was charged by AIMCO and its affiliates approximately $26,000 and $16,000, respectively, for insurance coverage and fees associated with policy claims administration.



In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 339.45 limited partnership units (the Units) in the Partnership representing 45.16% of the outstanding Units at December 31, 2006.  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 45.16% of the outstanding Units, AIMCO and its affiliates are in a position to influence all such 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 E  Investment Property 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)
|Versailles on the Lake |                |                |             |               
|Apartments             | $2,180         | $191           | $3,847      | $2,136        



|                       |                               |           |        |                |           |          |            
|---------------------- | ----------------------------- | --------- | ------ | -------------- | --------- | -------- | -----------
|                       | Gross Amount At Which Carried |           |        |                |          
|                       | At December 31, 2006          |           |        |                |          
|                       | (in thousands)                |           |        |                |          
|                       |                               |           |        |                |           |          |            
|                       |                               | Buildings |        |                |           |          |            
|                       |                               | And       |        |                | Date of   |          |            
|                       |                               | Personal  |        | Accumulated    | Construc- | Date     | Depreciable
|Description            | Land                          | Property  | Total  | Depreciation   | tion      | Acquired | Life       
|                       |                               |           |        | (in thousands) |           |          |            
|Versailles on the Lake |                               |           |        |                |           |          |            
|Apartments             | $191                          | $5,983    | $6,174 | $4,675         | 1970      | 04/84    | 5-30 yrs   



Reconciliation of "investment property and accumulated depreciation" (in thousands):



|                                       |                          |        
|-------------------------------------- | ------------------------ | -------
|                                       | Years Ended December 31,
|                                       | 2006                     | 2005   
|Investment Property                    |                          |        
|                                       |                          |        
|Balance at beginning of year           | $ 5,709                  | $ 5,574
|Property improvements and replacements | 465                      | 135    
|Balance at end of year                 | $6,174                   | $5,709 
|                                       |                          |        
|Accumulated Depreciation               |                          |        
|                                       |                          |        
|Balance at beginning of year           | $ 4,381                  | $ 4,103
|Additions charged to expense           | 294                      | 278    
|Balance at end of year                 | $4,675                   | $4,381 



The aggregate cost of the real estate for Federal income tax purposes at December 31, 2006 and 2005 is approximately $6,274,000 and $5,808,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 2006 and 2005 is approximately $4,978,000 and $4,830,000, respectively.

















Note F - 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. On December 14, 2006, Objector filed his Appellants Brief. The Partnership and its affiliates, as well as counsel of the Settlement Class, have not yet filed their briefs in response.



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.



AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, are defendants in a lawsuit alleging that they willfully violated the Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. The complaint, filed in the United States District Court for the District of Columbia, attempts to bring a collective action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call." Additionally, the complaint alleges AIMCO Properties, L.P. and NHP Management Company failed to comply with the FLSA in compensating maintenance workers for time that they worked in excess of 40 hours in a week.   In June 2005 the court conditionally certified the collective action on both the on-call and overtime issues.  Approximately 1,049 individuals opted in to the class. The defendants moved to decertify the collective action on both issues that issue is now fully briefed.  The defendants anticipate that the Court will soon set oral argument on the defendants decertification motion.  Because the court denied plaintiffs motion to certify state subclasses, in September 2005, the plaintiffs filed a class action with the same allegations in the Superior Court of California (Contra Costa County), and in November 2005 in Montgomery County Maryland Circuit Court.  The California and Maryland cases have been stayed pending the outcome of the decertification motion in the District of Columbia case.  Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the Managing General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnerships financial condition or results of operations.



The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment property 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 property, the Partnership could potentially be liable for environmental liabilities or costs associated with its property.



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 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 such term is 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.



(b)

Internal Control Over Financial Reporting. There have not been any changes in the Partnerships internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2006 that have materially affected, or are reasonably likely to materially affect, the Partnerships internal control over financial reporting.



Item 8B.

Other Information



None.













PART III



Item 9.

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



Davidson Diversified Real Estate I, L.P. (the "Partnership" or "Registrant") has no officers or directors. Davidson Diversified Properties, Inc. (the "Managing General Partner") manages and controls the Partnership and has general responsibility and authority in all matters affecting its business.



The names of the directors and officers of the Managing General Partner, their ages and the nature of all positions presently held by them are set forth below. There are no family relationships between or among any directors and officers.



|                     |     |                                               
|-------------------- | --- | ----------------------------------------------
|Name                 | Age | Position                                      
|                     |     |                                               
|Martha L. Long       | 47  | Director and Senior Vice President            
|Harry G. Alcock      | 44  | Director, Executive Vice President and Chief  
|                     |     | Investment Officer                            
|Timothy Beaudin      | 48  | Executive Vice President and Chief Development
|                     |     | Officer                                       
|Miles Cortez         | 63  | Executive Vice President, General Counsel     
|                     |     | and Secretary                                 
|Patti K. Fielding    | 43  | Executive Vice President  Securities and Debt
|Thomas M. Herzog     | 44  | Executive Vice President and Chief            
|                     |     | Financial Officer                             
|Robert Y. Walker, IV | 41  | Executive Vice President                      
|Scott W. Fordham     | 39  | Senior Vice President and Chief Accounting    
|                     |     | Officer                                       
|Stephen B. Waters    | 45  | 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 and Chief Investment Officer of the Managing General Partner in February 2004 and has been Executive Vice President and Chief Investment Officer 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.



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 2005, 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.



Miles Cortez was appointed Executive Vice President, General Counsel and Secretary of the Managing General Partner in February 2004 and of AIMCO in August 2001.  Prior to joining AIMCO, Mr. Cortez was the senior partner of Cortez Macaulay Bernhardt & Schuetze LLC, a Denver law firm, from December 1997 through September 2001.



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 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.



Robert Y. Walker, IV was appointed Senior Vice President of the Managing General Partner and AIMCO in August 2005 and served as the Chief Accounting Officer of the Managing General Partner and AIMCO from November 2005 to January 2007. Mr. Walker was promoted to Executive Vice President of the Managing General Partner and AIMCO in July 2006 and in January 2007 became the chief financial officer of Conventional Property Operations for AIMCO. From June 2002, until he joined AIMCO, Mr. Walker served as senior vice president and chief financial officer at Miller Global Properties, LLC, a Denver-based private equity, real estate fund manager.  From May 1997 to June 2002, Mr. Walker was employed by GE Capital Real Estate, serving as global controller from May 2000 to June 2002.



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. 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 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



Neither the directors nor officers of the Managing General Partner received any remuneration from the Registrant.



Item 11.

Security Ownership of Certain Beneficial Owners and Management



Except as noted below, no person or entity was known by the Registrant to be the beneficial owners of more than 5% of the Limited Partnership Units (the Units) of the Registrant as of December 31, 2006.



|                                      |                 |           
|------------------------------------- | --------------- | ----------
|Entity                                | Number of Units | Percentage
|                                      |                 |           
|AIMCO Properties, L.P.                | 235.05          | 31.27%    
|(an affiliate of AIMCO)               |                 |           
|Cooper River Properties, L.L.C.       | 85.65           | 11.40%    
|(an affiliate of AIMCO)               |                 |           
|AIMCO IPLP, L.P.                      | 18.50           | 2.46%     
|(an affiliate of AIMCO)               |                 |           
|Davidson Diversified Properties, Inc. | .25             | 0.03%     
|(an affiliate of AIMCO)               |                 |           



Cooper River Properties, L.L.C., AIMCO IPLP, L.P. and Davidson Diversified Properties, Inc. are indirectly ultimately owned by AIMCO. Their business address is 55 Beattie Place, Greenville, SC 29602.



AIMCO Properties, L.P. is indirectly ultimately controlled by AIMCO.  Its business address is 4582 S. Ulster St. Parkway, Suite 1100, Denver, CO 80237.



As of December 31, 2006, no director or officer of the Managing General Partner owns, nor do the directors or officers as a group own any 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.  Affiliates of the Managing General Partner provide property management services to the Partnership.  The Partnership Agreement provides for payments to affiliates for services and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership.



Affiliates of the Managing General Partner receive 5% of gross receipts from the Partnership's property as compensation for providing property management services.













The Partnership paid to such affiliates approximately $50,000 and $48,000 for the years ended December 31, 2006 and 2005, respectively, which are included in operating expenses on the statements of operations included in Item 7. Financial Statements.



Affiliates of the Managing General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $84,000 and $56,000 for the years ended December 31, 2006 and 2005, respectively, which are included in general and administrative expenses and investment property on the financial statements included in Item 7. Financial Statements. The portion of these reimbursements included in investment property for the years ended December 31, 2006 and 2005 are construction management services provided by an affiliate of the Managing General Partner of approximately $50,000 and $16,000, respectively. At December 31, 2006, approximately $65,000 was owed to affiliates for unpaid reimbursements, which are included in due to affiliates on the balance sheet included in Item 7. Financial Statements.



In accordance with the Partnership Agreement, during the years ended December 31, 2006 and 2005, an affiliate of the Managing General Partner advanced the Partnership approximately $363,000 and $84,000, respectively, to fund operating expenses and capital improvements at Versailles on the Lake Apartments. Interest is charged at the prime rate plus 1% (9.25% as of December 31, 2006).  Interest expense on advances from an affiliate of the Managing General Partner for the years ended December 31, 2006 and 2005 was approximately $40,000 and $16,000, respectively. At December 31, 2006, the amount of the outstanding advances and accrued interest was approximately $686,000 and is included in due to affiliates. Subsequent to December 31, 2006, an affiliate of the Managing General Partner advanced the Partnership approximately $23,000 to fund operating expenses at the Partnerships investment property.



The Partnership is liable to an affiliate of the Managing General Partner for real estate commissions in the amounts of approximately $125,000 for Revere Village Apartments and approximately $196,000 for Essex Apartments, both of which were sold in previous years. The total amount of approximately $321,000 is included on the balance sheet in due to affiliates. Payment of the commissions will not be made to the affiliate until the limited partners have received distributions equal to their original invested capital, plus 8% per annum cumulative non-compounded on their adjusted invested capital commencing on the last day of the calendar quarter in which each limited partner was admitted to the Partnership through the date of payment.



The Partnership insures its property 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 property above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the years ended December 31, 2006 and 2005, the Partnership was charged by AIMCO and its affiliates approximately $26,000 and $16,000, respectively, for insurance coverage and fees associated with policy claims administration.



In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 339.45 Units in the Partnership representing 45.16% of the outstanding Units at December 31, 2006.  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 45.16% of the outstanding Units, AIMCO and its affiliates are in a position to influence all such 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 financial statements of the Partnership for 2007. The aggregate fees billed for services rendered by Ernst & Young LLP during the years ended December 31, 2006 and 2005 are described below.



Audit Fees.  Fees for audit services totaled approximately $31,000 and $27,000 for the years 2006 and 2005, 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 $6,000 and $5,000 for 2006 and 2005, 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 DIVERSIFIED REAL ESTATE I, 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 16, 2007                        



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



|                     |                        |                     
|-------------------- | ---------------------- | --------------------
|/s/Harry G. Alcock   | Director and Executive | Date: March 16, 2007
|Harry G. Alcock      | Vice President         |                     
|                     |                        |                     
|/s/Martha L. Long    | Director and Senior    | Date: March 16, 2007
|Martha L. Long       | Vice President         |                     
|                     |                        |                     
|/s/Stephen B. Waters | Vice President         | Date: March 16, 2007
|Stephen B. Waters    |                        |                     















|                                      
|--------------------------------------
|DAVIDSON DIVERSIFIED REAL ESTATE I, LP
|                                      
|EXHIBIT INDEX                         



Exhibit

Description



3A

Partnership Agreement dated January 14, 1983 is incorporated by reference to Exhibit A to the Prospectus of the Partnership dated November 16, 1983 as filed with the Commission pursuant to Rule 424(b) under the Act.



3B

Amendment No. 1 dated January 1, 1986 to the Partnership Agreement is incorporated by reference to Exhibit 3B to the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1985.



4

Certificate of Limited Partnership dated December 2, 1982 is incorporated by reference to Exhibit 4 to the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1987.



4A

Certificate of Amendment of Certificate of Limited Partnership dated March 24, 1983 is incorporated by reference to Exhibit 4A to the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1987.



4B

Restated Certificate of Limited Partnership dated June 8, 1983 is incorporated by reference to Exhibit 4B to the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1987.



4C

Amended and Restated Certificate of Limited Partnership dated January 1, 1986 is incorporated by reference to Exhibit 4C to the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1987.



10D

Contract for Sale of Real Estate for Versailles on the Lake dated March 16, 1984 between Versailles on the Lake Associates, an Illinois limited partnership and Tennessee Trust Company, Trustee, is incorporated by reference to Exhibit 10(b) to the Partnership's Current Report on Form 8-K dated April 4, 1984.



10E

Assignment of Contract for Sale dated April 2, 1984 between Tennessee Trust Company, Trustee and the Partnership (relating to Versailles on the Lake Apartments) is incorporated by reference to Exhibit 10L to the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1984.



10W

Multifamily Note dated September 16, 2002, by and between Davidson Diversified Real Estate I, a Delaware limited partnership and GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 10W to the Partnerships Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 2002.)



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.













Exhibit 31.1

CERTIFICATION

I, Martha L. Long, certify that:

1.

I have reviewed this annual report on Form 10-KSB of Davidson Diversified Real Estate I, L.P.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;



4.

The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:



(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(c)

Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and



5.

The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and



(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Date: March 16, 2007

/s/Martha L. Long

Martha L. Long

Senior Vice President of Davidson Diversified Properties, Inc., equivalent of the chief executive officer of the Partnership













Exhibit 31.2

CERTIFICATION

I, Stephen B. Waters, certify that:

1.

I have reviewed this annual report on Form 10-KSB of Davidson Diversified Real Estate I, L.P.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;



4.

The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:



(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(c)

Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and



5.

The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and



(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Date: March 16, 2007

/s/Stephen B. Waters

Stephen B. Waters

Vice President of Davidson Diversified Properties, Inc., equivalent of the chief financial officer of the Partnership













Exhibit 32.1





|                                             
|---------------------------------------------
|Certification of CEO and CFO                 
|Pursuant to 18 U.S.C. Section 1350,          
|As Adopted Pursuant to                       
|Section 906 of the Sarbanes-Oxley Act of 2002







In connection with the Annual Report on Form 10-KSB of Davidson Diversified Real Estate I, L.P. (the "Partnership"), for the fiscal year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Martha L. Long, as the equivalent of the chief executive officer of the Partnership, and Stephen B. Waters, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:



(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.



| |                        
| | -----------------------
| | /s/Martha L. Long      
| | Name: Martha L. Long   
| | Date: March 16, 2007   
| |                        
| | /s/Stephen B. Waters   
| | Name: Stephen B. Waters
| | Date: March 16, 2007   



This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.