UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549



Form 10-QSB



(Mark One)

[X]

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



For the quarterly period ended September 30, 2007





[ ]

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





For the transition period from _________to _________



Commission file number 0-14530





DAVIDSON INCOME REAL ESTATE, L.P.

(Exact Name of Small Business Issuer as Specified in Its Charter)







Delaware

62-1242144

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)



55 Beattie Place, PO Box 1089

Greenville, South Carolina  29602

(Address of principal executive offices)



(864) 239-1000

(Issuer's telephone number)



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. Yes X  No ___



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







PART I  FINANCIAL INFORMATION



ITEM 1.

FINANCIAL STATEMENTS







DAVIDSON INCOME REAL ESTATE, L.P.



CONSOLIDATED BALANCE SHEET

(Unaudited)

(in thousands, except unit data)



September 30, 2007







|                                               |           |         
|---------------------------------------------- | --------- | --------
|Assets                                         |           |         
|Cash and cash equivalents                      |           | $    807
|Receivables and deposits                       |           | 86      
|Other assets                                   |           | 164     
|Investment properties:                         |           |         
|Land                                           | $  2,477  |         
|Buildings and related personal property        | 14,689    |         
|                                               | 17,166    |         
|Less accumulated depreciation                  | (10,356)  | 6,810   
|                                               |           | $7,867  
|Liabilities and Partners' (Deficiency) Capital |           |         
|Liabilities                                    |           |         
|Accounts payable                               |           | $     72
|Tenant security deposit liabilities            |           | 33      
|Accrued property taxes                         |           | 246     
|Other liabilities                              |           | 123     
|Deficit in joint venture (Note D)              |           | 1,047   
|Mortgage notes payable                         |           | 7,061   
|                                               |           |         
|Partners' (Deficiency) Capital                 |           |         
|General partners                               | $   (794) |         
|Limited partners (26,776 units issued and      |           |         
|outstanding)                                   | 79        | (715)   
|                                               |           | $7,867  





See Accompanying Notes to Consolidated Financial Statements













DAVIDSON INCOME REAL ESTATE, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per unit data)





|                                    |                    |                   |          |           
|----------------------------------- | ------------------ | ----------------- | -------- | ----------
|                                    | Three Months Ended | Nine Months Ended
|                                    | September 30,      | September 30,    
|                                    | 2007               | 2006              | 2007     | 2006      
|                                    |                    | (Restated)        |          | (Restated)
|Revenues:                           |                    |                   |          |           
|Rental income                       | $   588            | $   564           | $ 1,750  | $ 1,648   
|Other income                        | 64                 | 48                | 187      | 139       
|Total revenues                      | 652                | 612               | 1,937    | 1,787     
|                                    |                    |                   |          |           
|Expenses:                           |                    |                   |          |           
|Operating                           | 334                | 284               | 977      | 897       
|General and administrative          | 50                 | 31                | 148      | 132       
|Depreciation                        | 177                | 174               | 528      | 517       
|Interest                            | 92                 | 169               | 436      | 474       
|Property taxes                      | 86                 | 79                | 201      | 247       
|Total expenses                      | 739                | 737               | 2,290    | 2,267     
|                                    |                    |                   |          |           
|Loss before equity in loss of       |                    |                   |          |           
|joint venture and discontinued      |                    |                   |          |           
|operations                          | (87)               | (125)             | (353)    | (480)     
|Casualty gains (Note E)             | 16                 | --                | 16       | 183       
|Equity in loss of joint venture     | (17)               | (20)              | (60)     | (39)      
|Loss before discontinued operations | (88)               | (145)             | (397)    | (336)     
|Loss from discontinued operations   |                    |                   |          |           
|(Notes A and B)                     | --                 | (44)              | (140)    | (166)     
|Gain on sale of discontinued        |                    |                   |          |           
|operations (Note B)                 | --                 | --                | 5,716    | --        
|Net (loss) income                   | $(88)              | $(189)            | $5,179   | $(502)    
|                                    |                    |                   |          |           
|Net (loss) income allocated to      |                    |                   |          |           
|general partners (3%)               | $    (3)           | $    (6)          | $   155  | $   (15)  
|Net (loss) income allocated to      |                    |                   |          |           
|limited partners (97%)              | (85)               | (183)             | 5,024    | (487)     
|                                    | $(88)              | $(189)            | $5,179   | $(502)    
|                                    |                    |                   |          |           
|Per limited partnership unit:       |                    |                   |          |           
|Loss from continuing operations     | $ (3.17)           | $ (5.27)          | $(14.38) | $(12.18)  
|Loss from discontinued operations   | --                 | (1.57)            | (5.06)   | (6.01)    
|Gain on sale of discontinued        |                    |                   |          |           
|operations                          | --                 | --                | 207.07   | --        
|                                    | $(3.17)            | $(6.84)           | $187.63  | $(18.19)  
|                                    |                    |                   |          |           
|Distributions per limited           |                    |                   |          |           
|partnership Unit                    | $65.36             | $--               | $65.36   | $--       



See Accompanying Notes to Consolidated Financial Statements

















DAVIDSON INCOME REAL ESTATE, L.P.



CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIENCY) CAPITAL

(Unaudited)

(in thousands, except unit data)







|                                  |             |          |          |         
|--------------------------------- | ----------- | -------- | -------- | --------
|                                  | Limited     |          |          |         
|                                  | Partnership | General  | Limited  |         
|                                  | Units       | Partners | Partners | Total   
|                                  |             |          |          |         
|Original capital contributions    | 26,776      | $1       | $26,776  | $26,777 
|                                  |             |          |          |         
|Partners' deficit at              |             |          |          |         
|December 31, 2006                 | 26,776      | $  (895) | $(3,195) | $(4,090)
|                                  |             |          |          |         
|Distributions to partners         | --          | (54)     | (1,750)  | (1,804) 
|                                  |             |          |          |         
|Net income for the nine months    |             |          |          |         
|ended September 30, 2007          | --          | 155      | 5,024    | 5,179   
|                                  |             |          |          |         
|Partners' (deficiency) capital at |             |          |          |         
|September 30, 2007                | 26,776      | $(794)   | $79      | $(715)  





See Accompanying Notes to Consolidated Financial Statements











DAVIDSON INCOME REAL ESTATE, L.P.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)



|                                                       |                   |         
|------------------------------------------------------ | ----------------- | --------
|                                                       | Nine Months Ended
|                                                       | September 30,    
|                                                       | 2007              | 2006    
|Cash flows from operating activities:                  |                   |         
|Net income (loss)                                      | $ 5,179           | $  (502)
|Adjustments to reconcile net income (loss) to net cash |                   |         
|(used in) provided by operating activities:            |                   |         
|Casualty gain                                          | (16)              | (183)   
|Gain on sale of investment property                    | (5,716)           | --      
|Depreciation                                           | 738               | 846     
|Loss on extinguishment of debt                         | 9                 | --      
|Amortization of loan costs                             | 23                | 27      
|Equity in loss of joint venture                        | 60                | 39      
|Change in accounts:                                    |                   |         
|Receivables and deposits                               | 53                | 9       
|Other assets                                           | 19                | (49)    
|Accounts payable                                       | (53)              | (38)    
|Tenant security deposit liabilities                    | (41)              | 9       
|Accrued property taxes                                 | (69)              | 3       
|Other liabilities                                      | (28)              | 34      
|Due to affiliates                                      | (578)             | 225     
|Net cash (used in) provided by operating activities    | (420)             | 420     
|                                                       |                   |         
|Cash flows from investing activities:                  |                   |         
|Net proceeds from sale of investment property          | 8,823             | --      
|Property improvements and replacements                 | (402)             | (704)   
|Net withdrawals from (deposits to) restricted escrows  | 6                 | (43)    
|Insurance proceeds received                            | 19                | 217     
|Net cash provided by (used in) investing activities    | 8,446             | (530)   
|                                                       |                   |         
|Cash flows from financing activities:                  |                   |         
|Payments on mortgage notes payable                     | (275)             | (282)   
|Repayments of mortgage note payable                    | (2,611)           | --      
|Distributions to partners                              | (1,804)           | --      
|Advances from affiliates                               | 123               | 424     
|Payment on advances from affiliates                    | (2,931)           | --      
|Net cash (used in) provided by financing activities    | (7,498)           | 142     
|                                                       |                   |         
|Net increase in cash and cash equivalents              | 528               | 32      
|Cash and cash equivalents at beginning of period       | 279               | 201     
|                                                       |                   |         
|Cash and cash equivalents at end of period             | $807              | $233    
|                                                       |                   |         
|Supplemental disclosure of cash flow information:      |                   |         
|Cash paid for interest                                 | $985              | $395    
|                                                       |                   |         
|Supplemental disclosure of non-cash flow activity:     |                   |         
|Property improvements and replacements in accounts     |                   |         
|payable                                                | $5                | $25     



At December 31, 2006 and 2005, approximately $6,000 and $21,000 of property improvements and replacements were included in accounts payable and are included in property improvements and replacements at September 30, 2007 and 2006, respectively.



See Accompanying Notes to Consolidated Financial Statements











DAVIDSON INCOME REAL ESTATE, L.P.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note A  Basis of Presentation



The accompanying unaudited consolidated financial statements of Davidson Income Real Estate, L.P. (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of Davidson Diversified Properties, Inc. (the "Managing General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three and nine month periods ended September 30, 2007, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2007. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006. The Managing General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust.



In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the accompanying consolidated statements of operations for both the three and nine months ended September 30, 2006 have been restated to reflect the operations of Lakeside Apartments as discontinued operations as a result of the sale of the property on June 29, 2007. The operations of Lakeside Apartments for the three and nine months ended September 30, 2007 are included in discontinued operations.



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



Recent Accounting Pronouncement



In September 2006, the Financial Accounting Standards Boards (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants 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 Partnership does not anticipate that the adoption of SFAS No. 157 will have a material effect on the Partnerships consolidated financial statements.



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



In June 2007, the American Institute of Certified Public Accountants (the AICPA) issued Statement of Position No. 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies ("SOP 07-1").  SOP 07-1 provides guidance for determining whether the accounting principles of the AICPA Audit and Accounting Guide Investment Companies are required to be applied to an entity by clarifying the definition of an investment company and, whether investment company accounting should be retained by a parent company upon consolidation of an investment company subsidiary, or by an investor in the application of the equity method of accounting to an investment company investee.  SOP 07-1 applies to reporting periods beginning on or after December 15, 2007; however, the FASB has decided to issue an exposure draft that would indefinitely delay the effective date of SOP 07-1 until the FASB can reassess the provisions of SOP 07-1. The Partnership is currently evaluating the impact, if any, that adoption of SOP 07-1 may have on its consolidated financial statements in the period of adoption.



Note B  Disposition of Investment Property



On June 29, 2007, the Partnership sold one of its investment properties, Lakeside Apartments, to a third party.  In addition to Lakeside Apartments, affiliates of the third party also purchased nine other apartment complexes, all of which were owned by entities affiliated with AIMCO Properties, L.P., an affiliate of the Managing General Partner of the Partnership. The total sales price for Lakeside Apartments and the other properties were approximately $95,800,000 of which approximately $8,850,000 was allocated to Lakeside Apartments.  The net proceeds realized by the Partnership were approximately $8,823,000 after payment of closing costs.  The Partnership used approximately $2,611,000 to repay the mortgage encumbering the property.  The Partnership realized a gain of approximately $5,716,000 for the nine months ended September 30, 2007, as a result of the sale. The propertys operations of approximately zero and $44,000 are shown as loss from discontinued operations for the three months ended September 30, 2007 and 2006, respectively, and include revenues of approximately zero and $328,000, respectively. The propertys operations of approximately $140,000 and $166,000 are shown as loss from discontinued operations for the nine months ended September 30, 2007 and 2006, respectively, and include revenues of approximately $700,000 and $960,000, respectively. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $9,000 as a result of the write off of unamortized loan costs of approximately $4,000 and a termination fee of approximately $5,000.  This amount is included in loss from discontinued operations for the nine months ended September 30, 2007.



Note C  Transactions with Affiliated Parties



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



Affiliates of the Managing General Partner receive 5% of gross receipts from all of the Partnership's investment properties as compensation for providing property management services.  The Partnership paid to such affiliates approximately $130,000 and $135,000 for the nine months ended September 30, 2007 and 2006, respectively, which is included in operating expenses and loss from discontinued operations.



An affiliate of the Managing General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $112,000 and $131,000 for the nine months ended September 30, 2007 and 2006, respectively, which are included in general and administrative expenses, investment properties and gain on sale of discontinued operations.  The portion of these reimbursements included in investment properties and gain on sale of discontinued operations for the nine months ended September 30, 2007 and 2006 are construction management services provided by an affiliate of the Managing General Partner of approximately $25,000 and $59,000, respectively.



During the nine months ended September 30, 2007 an affiliate of the Managing General Partner advanced approximately $123,000 to the Partnership to pay accounts payable and real estate taxes at Covington Pointe Apartments and accounts payable at Lakeside Apartments. During the nine months ended September 30, 2006 an affiliate of the Managing General Partner advanced approximately $424,000 to the Partnership to pay accounts payable and capital expenditures at Bexley House Apartments and Covington Pointe Apartments. During the nine months ended September 30, 2007, approximately $3,560,000 in outstanding loans and accrued interest were paid from the net proceeds received from the sale of Lakeside Apartments. There were no payments made during the nine months ended September 30, 2006. Interest on the advances is charged at prime plus 1%. Interest expense on the advances was approximately $157,000 and $200,000 for the nine months ended September 30, 2007 and 2006, respectively.



The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty, general liability, and vehicle liability.  The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner.  During the nine months ended September 30, 2007 and 2006, the Partnership was charged by AIMCO and its affiliates approximately $125,000 and $92,000, respectively, for insurance coverage and fees associated with policy claims administration.



Note D  Deficit in Joint Venture Investment



The Partnership owns a 17.5% interest in the Sterling Crest Joint Venture (the Joint Venture) with Davidson Growth Plus, L.P., an affiliate of the Managing General Partner, which owns the remaining 82.5% of the Joint Venture.



There were no distributions received from the Joint Venture during the nine months ended September 30, 2007 and 2006. During the nine months ended September 30, 2007 and 2006 the Partnership recognized approximately $60,000 and $39,000 of equity in loss of the Joint Venture, respectively. At September 30, 2007, the Partnership had received distributions and recognized equity in losses of the Joint Venture in excess of its general partnership interest and has an investment deficit of approximately $1,047,000.



The following table represents the net loss of the Sterling Crest Joint Venture for the nine months ended September 30, 2007 and 2006 (in thousands):



|               |                                 |        
|-------------- | ------------------------------- | -------
|               | Nine months ended September 30,
|               | 2007                            | 2006   
|               |                                 |        
|Total revenues | $ 1,891                         | $ 1,893
|Total expenses | (2,231)                         | (2,119)
|Net loss       | $(340)                          | $(226) 



Note E  Casualty Gains



In May 2007, Covington Pointe suffered damages to two of its rental units as a result of vandalism and water damage. Insurance proceeds of approximately $19,000 were received during the three and nine months ended September 30, 2007. The Partnership recognized a casualty gain of approximately $16,000 for the three and nine months ended September 30, 2007 as a result of the receipt of approximately $19,000 in insurance proceeds net of the write-off of the undepreciated damaged assets of approximately $3,000.



In December 2005, Bexley House Apartments suffered fire damage to two of its rental units.  Insurance proceeds of approximately $224,000 were received during the year ended December 31, 2006. The Partnership recognized a casualty gain of approximately $191,000 for the year ended December 31, 2006 as a result of the receipt of approximately $224,000 in insurance proceeds net of the write-off of the undepreciated damaged assets of approximately $34,000. During the nine months ended September 30, 2006, the Partnership received approximately $217,000 of initial insurance proceeds related to this casualty.



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 for the Settlement Class, both filed Respondents Briefs on May 17, 2007.  Objector filed his response on August 3, 2007.  No hearing date has yet been scheduled.



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



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



Environmental



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



Mold



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















ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



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 Partnership's financial statements and the notes thereto, as well as the risk factors described in the documents the Partnership files from time to time with the Securities and Exchange Commission.



The Partnership's investment properties consist of two apartment complexes at September 30, 2007.  The following table sets forth the average occupancy of the properties for the nine months ended September 30, 2007 and 2006:



|                            |                   |     
|--------------------------- | ----------------- | ----
|                            | Average Occupancy
|Property                    | 2007              | 2006
|                            |                   |     
|Bexley House Apartments     | 97%               | 88% 
|Columbus, Ohio (1)          |                   |     
|Covington Pointe Apartments | 98%               | 97% 
|Dallas, Texas               |                   |     



(1)

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



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



Results of Operations



The Partnership had a net loss of approximately $88,000 and net income of approximately $5,179,000 for the three and nine months ended September 30, 2007, respectively, compared to a net loss of approximately $189,000 and $502,000 for the three and nine months ended September 30, 2006, respectively. The decrease in net loss for the three months ended September 30, 2007 was due to an increase in total revenues, the recognition of a casualty gain and a decrease in loss from discontinued operations.  The increase in net income for the nine months ended September 30, 2007 is due to the recognition of a gain on sale of discontinued operations and a decrease in loss from continuing operations partially offset by the recognition of a casualty gain at Bexley House Apartments during 2006.



In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the accompanying consolidated statements of operations for both the three and nine months ended September 30, 2006 have been restated to reflect the operations of Lakeside Apartments as discontinued operations as a result of the sale of the property on June 29, 2007.  The operations of Lakeside Apartments for the three and nine months ended September 30, 2007 are included in loss from discontinued operations.



On June 29, 2007, the Partnership sold one of its investment properties, Lakeside Apartments, to a third party.  In addition to Lakeside Apartments, affiliates of the third party also purchased nine other apartment complexes, all of which were owned by entities affiliated with AIMCO Properties, L.P., an affiliate of the Managing General Partner of the Partnership. The total sales price for Lakeside Apartments and the other properties were approximately $95,800,000 of which approximately $8,850,000 was allocated to Lakeside Apartments.  The net proceeds realized by the Partnership were approximately $8,823,000 after payment of closing costs.  The Partnership used approximately $2,611,000 to repay the mortgage encumbering the property.  The Partnership realized a gain of approximately $5,716,000 for the nine months ended September 30, 2007, as a result of the sale. The propertys operations of approximately zero and $44,000 are shown as loss from discontinued operations for the three months ended September 30, 2007 and 2006, respectively, and include revenues of approximately zero and $328,000, respectively. The propertys operations of approximately $140,000 and $166,000 are shown as loss from discontinued operations for the nine months ended September 30, 2007 and 2006, respectively, and include revenues of approximately $700,000 and $960,000, respectively. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $9,000 as a result of the write off of unamortized loan costs of approximately $4,000 and a termination fee of approximately $5,000.  This amount is included in loss from discontinued operations for the nine months ended September 30, 2007.



Excluding the gain on sale and loss from discontinued operations, the Partnership had a loss of approximately $88,000 and $397,000 for the three and nine months ended September 30, 2007, respectively, compared to a loss of approximately $145,000 and $336,000 for the three and nine months ended September 30, 2006, respectively.  The decrease in loss before discontinued operations for the three months ended September 30, 2007 is due to an increase in total revenues and the recognition of a casualty gain, partially offset by an increase in total expenses.  The increase in loss before discontinued operations for the nine months ended September 30, 2007 is due to an increase in total expenses, an increase in equity in loss of joint venture and a decrease in the recognition of casualty gains partially offset by an increase in total revenues.



The increase in total revenues for both the three and nine months ended September 30, 2007 is due to increases in both rental income and other income.  Rental income increased due to an increase in occupancy at Bexley House Apartments and an increase in the average rental rate at Covington Pointe Apartments and Bexley House Apartments.  Other income increased due to an increase in utility reimbursements at both investment properties and an increase in interest income.



In May 2007, Covington Pointe suffered damages to two of its rental units as a result of vandalism and water damage. Insurance proceeds of approximately $19,000 were received during the three and nine months ended September 30, 2007. The Partnership recognized a casualty gain of approximately $16,000 for the three and nine months ended September 30, 2007 as a result of the receipt of approximately $19,000 in insurance proceeds net of the write-off of the undepreciated damaged assets of approximately $3,000.















In December 2005, Bexley House Apartments suffered fire damage to two of its rental units.  Insurance proceeds of approximately $224,000 were received during the year ended December 31, 2006. The Partnership recognized a casualty gain of approximately $191,000 for the year ended December 31, 2006 as a result of the receipt of approximately $224,000 in insurance proceeds net of the write-off of the undepreciated damaged assets of approximately $34,000. During the nine months ended June 30, 2006, the Partnership received approximately $217,000 of initial insurance proceeds related to this casualty.



The increase in total expenses for the three months ended September 30, 2007 is due to an increase in both operating and general and administrative expenses partially offset by a decrease in interest expense.  Depreciation and property tax expenses remained relatively constant for the comparable period.  The increase in total expenses for the nine months ended September 30, 2007 is due to an increase in both operating and general administrative expenses partially offset by a decrease in both property tax and interest expenses.  Depreciation expense remained relatively constant for the comparable period.   The increase in operating expense for both the three and nine months ended September 30, 2007 is due to increases in property and administrative expenses.  Property expense increased due to training costs as well as payroll and benefit costs.  Administrative expense increased due to an increase in costs associated with appealing the property taxes for Bexley House Apartments. The decrease in interest expense for both the three and nine months ended September 30, 2007 is due to a decrease in interest on advances from an affiliate as a result of the advances being fully repaid at the end of the second quarter of 2007.  The decrease in property tax expense for the nine months ended September 30, 2007 is due to the receipt of a refund of prior year taxes due to a decrease in the assessed value of Bexley House Apartments during the second quarter of 2007.



General and administrative expense increased for both the three and nine months ended September 30, 2007 due to an increase in the costs included in the reimbursements to an affiliate of the Managing General Partner.  Included in general and administrative expense for the nine months ended September 30, 2007 and 2006 are management reimbursements to the Managing General Partner as allowed under the Partnership Agreement. Also included in general and administrative expenses are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement.



The Partnership owns a 17.5% interest in Sterling Crest Joint Venture (the Joint Venture). The Partnership recognized equity in loss of the Joint Venture of approximately $60,000 and $39,000 for the nine months ended September 30, 2007 and 2006, respectively.



Liquidity and Capital Resources



At September 30, 2007, the Partnership had cash and cash equivalents of approximately $807,000 compared to approximately $233,000 at September 30, 2006.  Cash and cash equivalents increased approximately $528,000 since December 31, 2006 due to approximately $8,446,000 of cash provided by investing activities partially offset by approximately $7,498,000 of cash used in financing activities and approximately $420,000 of cash used in operating activities.  Cash provided by investing activities consisted of proceeds from the sale of Lakeside Apartments, insurance proceeds received and the receipt of withdrawals from restricted escrows partially offset by property improvements and replacements. Cash used in financing activities consisted of payments of principal on the mortgages encumbering the Partnerships investment properties, repayment of the mortgage encumbering Lakeside Apartments, distributions of proceeds from the sale of Lakeside Apartments to limited partners and payment on advances from an affiliate of the Managing General Partner partially offset by the receipt of advances from an affiliate of the Managing General Partner.  The Partnership invests its working capital reserves in interest bearing accounts.



The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the investment properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state and local legal and regulatory requirements. The Managing General Partner monitors developments in the area of legal and regulatory compliance.  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 properties.  Capital improvements planned for each of the Partnerships properties are detailed below.



Lakeside Apartments



During the nine months ended September 30, 2007, the Partnership completed approximately $90,000 of capital improvements at Lakeside Apartments, consisting primarily of appliance and floor covering replacements and air conditioning, water and sewer upgrades.  These improvements were funding from operating cash flow.  The property was sold to a third party on June 29, 2007.



Bexley House Apartments



During the nine months ended September 30, 2007, the Partnership completed approximately $62,000 of capital improvements at Bexley House Apartments, consisting primarily of washer/dryer replacements, parking lot resurfacing, grounds lighting enhancements, recreational facility enhancements and floor covering replacements. These improvements were funded from operating cash flow.  The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2007. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.



Covington Pointe Apartments



During the nine months ended September 30, 2007, the Partnership completed approximately $249,000 of capital improvements at Covington Pointe Apartments, consisting primarily of air conditioning replacements, kitchen and bath resurfacing, roof replacements, water heater replacements, appliance upgrades and floor covering replacements. These improvements were funded from operating cash flow, insurance proceeds and advances from an affiliate of the Managing General Partner. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 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 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 sufficient for any near-term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness encumbering the Partnerships investment properties of approximately $7,061,000 is amortized over varying periods, with a balloon payment of approximately $4,416,000 due in July 2010 for Covington Pointe Apartments. The mortgage encumbering Bexley House Apartments matures in July 2021 at which time the loan is scheduled to be fully amortized. The Managing General Partner will attempt to refinance and/or sell Covington Pointe Apartments prior to such maturity date. If the property cannot be refinanced or sold for a sufficient amount, the Partnership may risk losing the property through foreclosure.



The Partnership distributed the following amounts during the nine months ended September 30, 2007 and 2006 (in thousands, except per unit data):



|         |               |             |               |            
|-------- | ------------- | ----------- | ------------- | -----------
|         | Nine Months   |             | Nine Months   |            
|         | Ended         | Per Limited | Ended         | Per Limited
|         | September 30, | Partnership | September 30, | Partnership
|         | 2007          | Unit        | 2006          | Unit       
|         |               |             |               |            
|Sale (1) | $1,804        | $65.36      | $   --        | $   --     



(1)

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



Future cash distributions will depend on the levels of net cash generated from operations, and the timing of debt maturities, property sales and/or refinancings.  The Partnerships cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after capital expenditures to permit additional distributions to its partners during the remainder of 2007 or subsequent periods.



Other



In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 13,206.50 limited partnership units (the "Units") in the Partnership representing 49.32% of the outstanding Units at September 30, 2007.  A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers.  Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 49.32% of the outstanding Units, AIMCO and its affiliates are in a position to influence all voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.



Critical Accounting Policies and Estimates



The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.



Impairment of Long-Lived Assets



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







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



Revenue Recognition



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



Capitalized Costs Related to Redevelopment and Construction Projects



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



ITEM 3.

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 fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnerships internal control over financial reporting.













PART II - OTHER INFORMATION





ITEM 1.

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 for the Settlement Class, both filed Respondents Briefs on May 17, 2007.  Objector filed his response on August 3, 2007.  No hearing date has yet been scheduled.



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



ITEM 5.

OTHER INFORMATION



None.



ITEM 6.

EXHIBITS



See Exhibit Index.











SIGNATURES







In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                        |                                             
|----------------------- | --------------------------------------------
|                        | DAVIDSON INCOME REAL ESTATE, L.P.           
|                        |                                             
|                        | By:   Davidson Diversified Properties, Inc.,
|                        | Managing General Partner                    
|                        |                                             
|Date: November 13, 2007 | By:   /s/Martha L. Long                     
|                        | Martha L. Long                              
|                        | Senior Vice President                       
|                        |                                             
|Date: November 13, 2007 | By:   /s/Stephen B. Waters                  
|                        | Stephen B. Waters                           
|                        | Vice President                              















DAVIDSON INCOME REAL ESTATE, LP



EXHIBIT INDEX

Exhibit



3

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



3A

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



4

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



4A

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



10L

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



10M

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



10N

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



10O

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



10P

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



10Q

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



10R

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



10S

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



10T

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



10Y

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



10Z

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



10AA

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



10DD

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



10FF

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



10GG

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



10RR

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



10TT

Contracts related to refinancing of debt of Covington Pointe Apartments:



(a)

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



(b)

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



(c)

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



10VV

Contracts related to sale of Lakeside Apartments



(a)

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



(b)

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



(c)

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



(d)

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



31.1

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



31.2

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



32.1

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



99A

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



99B

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



99C

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