<PAGE>
                                   FORM 10-QSB
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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


For the quarterly period ended     September 30, 1998
                                   ------------------

Commission file number                0-23766
                                   --------------


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
   --------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)



          Maryland                                      52-1388957
------------------------------------              ------------------------
(State or other jurisdiction of                   (I.R.S. Employer
incorporation or organization)                    Identification No.)



11200 Rockville Pike, Rockville, Maryland                 20852
-----------------------------------------         ------------------------
(Address of principal executive offices)                (Zip Code)



                                 (301) 468-9200
   --------------------------------------------------------------------------
                (Issuer's telephone number, including area code)


     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, and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X]   No [ ]   

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:


     Not applicable                            Not applicable
--------------------------         ---------------------------------------
        (Class)                      (Outstanding at September 30, 1998)
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                              INDEX TO FORM 10-QSB

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1998



                                                                 Page
                                                                 ----

PART I.   Financial Information (Unaudited)

Item 1.   Financial Statements

          Consolidated Balance Sheets - September 30, 1998 and
            December 31, 1997 . . . . . . . . . . . . . . . .        1

          Consolidated Statements of Operations and Accumulated
            Losses - for the three and nine months ended
            September 30, 1998 and 1997 . . . . . . . . . . .        2 

          Consolidated Statements of Cash Flows - for the
            nine months ended September 30, 1998 and 1997 . .        3

          Notes to Consolidated Financial Statements -
            September 30, 1998 and 1997   . . . . . . . . . .        4

Item 2.   Management's Discussion and Analysis of Financial
            Condition and Results of Operations . . . . . . .       11

PART II.  Other Information

Item 3.   Defaults Upon Senior Securities . . . . . . . . . .       14

Item 6.   Exhibits and Reports on Form 8-K  . . . . . . . . .       14

Signature   . . . . . . . . . . . . . . . . . . . . . . . . .       15

Exhibit Index   . . . . . . . . . . . . . . . . . . . . . . .       16
<PAGE>
PART I.   FINANCIAL INFORMATION
          ---------------------
ITEM 1.   FINANCIAL STATEMENTS
          ---------------------

                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                            CONSOLIDATED BALANCE SHEETS

                                      ASSETS
<TABLE>
<CAPTION>
                                                                                               September 30,    December 31,
                                                                                                   1998            1997
                                                                                               -------------    ------------
                                                                                                (Unaudited)
<S>                                                                                            <C>              <C>
Investments in and advances to partnerships                                                    $     511,554    $     612,145
Investment in partnership held for sale                                                              281,494               -- 
Cash and cash equivalents                                                                          2,171,496        1,798,455
Acquisition fees, principally paid to related parties, net of
  accumulated amortization of $108,282 and $117,156,
  respectively                                                                                       150,328          180,745
Property purchase costs, net of accumulated amortization of
  $101,964 and $117,875, respectively                                                                137,959          176,813
Other assets                                                                                           5,721            5,900
                                                                                               -------------    -------------

      Total assets                                                                             $   3,258,552    $   2,774,058
                                                                                               =============    =============

                        LIABILITIES AND PARTNERS' DEFICIT

Due on investments in partnerships                                                             $   2,522,600    $   2,522,600
Accrued interest payable                                                                           6,164,848        5,495,200
Accounts payable and accrued expenses                                                                 67,660           56,987
                                                                                               -------------    -------------
      Total liabilities                                                                            8,755,108        8,074,787
                                                                                               -------------    -------------

Commitments and contingencies

Partners' capital (deficit):

  Capital paid in:
    General Partners                                                                                   2,000            2,000
    Limited Partners                                                                              21,202,500       21,202,500
                                                                                               -------------    -------------
                                                                                                  21,204,500       21,204,500

  Less:
    Offering costs                                                                                (2,570,535)      (2,570,535)
    Accumulated losses                                                                           (24,130,521)     (23,934,694)
                                                                                               -------------    -------------
      Total partners' deficit                                                                     (5,496,556)      (5,300,729)
                                                                                               -------------    -------------

      Total liabilities and partners' deficit                                                  $   3,258,552    $   2,774,058
                                                                                               =============    =============
</TABLE>

                   The accompanying notes are an integral part
                   of these consolidated financial statements.

                                      - 1 -
<PAGE>
PART I.   FINANCIAL INFORMATION
          ---------------------
ITEM 1.   FINANCIAL STATEMENTS
          ---------------------

                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                       CONSOLIDATED STATEMENTS OF OPERATIONS
                              AND ACCUMULATED LOSSES

                                    (Unaudited)
<TABLE>
<CAPTION>

                                                                  For the three months ended       For the nine months ended
                                                                         September 30,                    September 30,
                                                                 ----------------------------    ----------------------------
                                                                     1998            1997            1998            1997
                                                                 ------------    ------------    ------------    ------------
<S>                                                              <C>             <C>             <C>             <C>
Share of income from partnerships                                $    470,671    $    144,667    $    599,370    $    437,752
                                                                 ------------    ------------    ------------    ------------
Other revenue and expenses:

  Revenue:
    Interest and other income                                          33,599          22,859          91,979         113,551
                                                                 ------------    ------------    ------------    ------------

  Expenses:
    Interest                                                          223,216         223,215         669,648         686,721
    General and administrative                                         24,527          18,058          81,693          71,217
    Management fee                                                     24,482          24,482          73,447          73,447
    Professional fees                                                  15,195          12,214          47,574          47,169
    Amortization                                                        4,938           4,939          14,814          14,816
                                                                 ------------    ------------    ------------    ------------
                                                                      292,358         282,908         887,176         893,370
                                                                 ------------    ------------    ------------    ------------
       Total other revenue and expenses                              (258,759)       (260,049)       (795,197)       (779,819)
                                                                 ------------    ------------    ------------    ------------

Income (loss) before gain on disposition
  of investment in partnership or extraordinary
  gain on forgiveness of accrued interest                             211,912        (115,382)       (195,827)       (342,067)

Gain on disposition of investment in partnership
  or extraordinary gain on forgiveness of accrued
  interest                                                                 --              --              --       2,727,260
                                                                 ------------    ------------    ------------    ------------

Net income (loss)                                                     211,912        (115,382)       (195,827)      2,385,193

Accumulated losses, beginning of period                           (24,342,433)    (23,662,160)    (23,934,694)    (26,162,735)
                                                                 ------------    ------------    ------------    ------------

Accumulated losses, end of period                                $(24,130,521)   $(23,777,542)   $(24,130,521)   $(23,777,542)
                                                                 ============    ============    ============    ============

                                                             (Continued)

</TABLE>

                    The accompanying notes are an integral part
                    of these consolidated financial statements.

                                       - 2 -
<PAGE>
PART I.   FINANCIAL INFORMATION
          ---------------------
ITEM 1.   FINANCIAL STATEMENTS
          ---------------------

                   CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                  CONSOLIDATED STATEMENTS OF OPERATIONS - Continued
                                AND ACCUMULATED LOSSES

                                     (Unaudited)
<TABLE>
<CAPTION>

                                                                  For the three months ended       For the nine months ended
                                                                         September 30,                    September 30,
                                                                 ----------------------------    ----------------------------
                                                                     1998            1997            1998            1997
                                                                 ------------    ------------    ------------    ------------
<S>                                                              <C>             <C>             <C>             <C>

Net income (loss) allocated to General Partners (1.51%)          $      3,200    $     (1,742)   $     (2,957)   $     36,016
                                                                 ============    ============    ============    ============

Net income (loss) allocated to Initial and Special
  Limited Partners (2.49%)                                       $      5,277    $     (2,873)   $     (4,876)   $     59,391
                                                                 ============    ============    ============    ============

Net income (loss) allocated to BAC Holders (96%)                 $    203,435    $   (110,767)   $   (187,994)   $  2,289,786
                                                                 ============    ============    ============    ============

Net income (loss) per BAC based on 21,195 BACs
  outstanding                                                    $       9.60    $      (5.23)   $      (8.87)   $     108.03
                                                                 ============    ============    ============    ============
</TABLE>


























                    The accompanying notes are an integral part
                    of these consolidated financial statements.

                                       - 3 -
<PAGE>
PART I.   FINANCIAL INFORMATION
          ---------------------
ITEM 1.   FINANCIAL STATEMENTS
          ---------------------

                   CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                        CONSOLIDATED STATEMENTS OF CASH FLOWS

                                    (Unaudited)

<TABLE>
<CAPTION>
                                                                                                   For the nine months ended
                                                                                                          September 30,
                                                                                                 ----------------------------
                                                                                                     1998            1997
                                                                                                 ------------    ------------
<S>                                                                                              <C>             <C>
Cash flows from operating activities:
  Net (loss) income                                                                              $   (195,827)   $  2,385,193

  Adjustments to reconcile net (loss) income to net cash used in
    operating activities:
    Share of income from partnerships                                                                (599,370)       (437,752)
    Amortization of deferred costs                                                                     14,814          14,816
    Payment of purchase money note interest                                                                --        (122,888)
    Gain on disposition of investment in partnership or extraordinary
      gain on forgiveness of accrued interest                                                              --      (2,727,260)

    Changes in assets and liabilities:
      Increase in accrued interest receivable on advances to parterships                              (17,719)        (17,719)
      Decrease (increase) in other assets                                                                 179          (1,622)
      Increase in accrued interest payable                                                            669,648         686,721
      Increase in accounts payable and accrued expenses                                                10,673          13,811
                                                                                                 ------------    ------------
         Net cash used in operating activities                                                       (117,602)       (206,700)
                                                                                                 ------------    ------------

Cash flows from investing activities:
  Receipt of distributions from partnerships                                                          452,294         528,558
  Repayment of advances to partnerships                                                                38,349         256,200
                                                                                                 ------------    ------------
         Net cash provided by investing activities                                                    490,643         784,758
                                                                                                 ------------    ------------

Net increase in cash and cash equivalents                                                             373,041         578,058

Cash and cash equivalents, beginning of period                                                      1,798,455       1,266,939
                                                                                                 ------------    ------------

Cash and cash equivalents, end of period                                                         $  2,171,496    $  1,844,997
                                                                                                 ============    ============


Supplemental disclosure of cash flow information:
  Cash paid during the period for interest                                                       $         --    $    122,888
                                                                                                 ============    ============

</TABLE>

                    The accompanying notes are an integral part
                    of these consolidated financial statements.

                                       - 4 -
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 1998 AND 1997

                                   (Unaudited)

1.   BASIS OF PRESENTATION

     In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited financial statements reflect all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of the financial
position of Capital Realty Investors-85 Limited Partnership (the Partnership) as
of September 30, 1998, and the results of its operations for the three and nine
months ended September 30, 1998 and 1997, and its cash flows for the nine months
ended September 30, 1998 and 1997.  The results of operations for the interim
period ended September 30, 1998, are not necessarily indicative of the results
to be expected for the full year.

     The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles and with the
instructions to Form 10-QSB.  Certain information and accounting policies and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such instructions.  These condensed financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Partnership's annual report on Form 10-K at December 31, 1997.


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

     The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having a principal balance of
$2,348,000 plus accrued interest of $6,089,448 as of September 30, 1998, are
payable in full upon the earliest of: (1) sale or refinancing of the respective
Local Partnership's rental property; (2) payment in full of the respective Local
Partnership's permanent loan; or (3) maturity.  A purchase money note in the
principal amount of $230,000 matured on January 30, 1996 but has not been paid
or extended.  Purchase money notes having a principal balance of $250,000 and
$1,250,000 matured on January 1, 1997 and February 1, 1997, respectively, and
the Partnership's obligation with respect to these notes has been satisfied. 
The remaining purchase money notes mature from 2001 to 2003.   

     The purchase money notes, which are nonrecourse to the Partnership, are
generally secured by the Partnership's interest in the respective Local
Partnerships.  There is no assurance that the underlying properties will have
sufficient appreciation and equity to enable the Partnership to pay the purchase
money notes' principal and accrued interest when due.  If a purchase money note
is not paid in accordance with its terms, the Partnership will either have to
renegotiate the terms of repayment or risk losing its partnership interest in
the Local Partnership.  The Partnership's inability to pay certain of the
purchase money note principal and accrued interest balances when due, and the
resulting uncertainty regarding the Partnership's continued ownership interest
in the related Local Partnerships, does not impact the Partnership's financial
condition because the purchase money notes are nonrecourse and secured solely by
the Partnership's interest in the related Local Partnerships.  Therefore, should
the investment in any of the Local Partnerships with maturing purchase money
notes not produce sufficient value to satisfy the related purchase money notes,
the Partnership's exposure to loss is limited because the amount of the
nonrecourse indebtedness of each of the maturing purchase money notes exceeds
the carrying amount of the investment in and advances to each of the related
Local Partnerships.  Thus, even a complete loss of one of these Local

                                       -5-
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

Partnerships would not have a material impact on the financial condition of the
Partnership.  See further discussion of certain purchase money notes below.

     Interest expense on the Partnership's purchase money notes was $223,216 and
$669,648 for the three and nine months ended September 30, 1998, respectively,
and $223,215 and $686,721 for the three and nine months ended September 30,
1997, respectively.  The accrued interest payable on the purchase money notes of
$6,089,448 and $5,419,800 as of September 30, 1998 and December 31, 1997,
respectively, is due on the respective maturity dates of the purchase money
notes or earlier, in some instances, if (and to the extent of a portion thereof)
the pertinent Local Partnership has distributable net cash flow, as defined in
the relevant Local Partnership agreement.

     As of September 30, 1998 and December 31, 1997, the Partnership had
advanced funds totaling $262,500 and $300,849, respectively, to Local
Partnerships.  Interest accrued on these advances was $263,532 and $245,813 as
of September 30, 1998 and December 31, 1997, respectively.  For financial
reporting purposes, these loans have been or will be reduced to zero by the
Partnership as a result of losses from the related Local Partnerships.

                                    Deerfield
                                    ---------

     Deerfield Partners Limited Partnership (Deerfield) was unable to generate
sufficient cash flow to pay its debt service and therefore was unable to meet
its obligations under the terms of its mortgage loan.  The Local Partnership
defaulted on its mortgage loan in 1990.  On November 16, 1995, the Local
Partnership received a notice of default, acceleration and assignment of rents
from the mortgagee.  On February, 27, 1996, Deerfield entered into a term sheet
agreement with the mortgagee pursuant to which Deerfield transferred management
of the property to the mortgagee on April 1, 1996 and agreed, at the mortgagee's
election, to either voluntarily transfer ownership of the property to the
mortgagee, or not oppose a foreclosure action, occurring no earlier than January
6, 1997, without further consideration, if the mortgage loan default had not
been cured by that date.  On January 7, 1997, in accordance with the term sheet
agreement, the mortgagee foreclosed on the property.

     The Partnership defaulted on its purchase money notes relating to Deerfield
when the notes matured on January 1, 1997 and were not paid.  The default amount
included principal and accrued interest of $250,000 and $623,068, respectively. 
Since the purchase money notes were nonrecourse and secured solely by the
Partnership's interest in the related Local Partnership, the Partnership's
obligation regarding the purchase money notes was retired in conjunction with
the transfer of ownership in Deerfield to the mortgagee, as discussed above. 
The Partnership's investment in Deerfield had previously been reduced to zero as
a result of losses from the Local Partnership during prior years.  Acquisition
fees and property purchase costs relating to Deerfield were previously fully
amortized in order to record the investment at its net realizable value.  As a
result of the foreclosure on the Deerfield property, the Partnership's purchase
money note obligation was forgiven and resulted in a net financial statement
gain of approximately $875,000.  The federal tax gain was approximately $2.4
million.



                                       -6-
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

                           Devonshire and Springfield
                           --------------------------

     During June 1998, the local managing general partners of Devonshire
Development Limited Partnership (Devonshire) and Springfield Properties Limited
Partnership (Springfield) received offers from third parties to purchase the
respective properties.  The local managing general partners of Devonshire and
Springfield entered into contracts to sell the respective properties to a real
estate investment trust (REIT) (in the case of Springfield) and the REIT's
affiliate (in the case of Devonshire) on or before January 15, 1999.  The
contracts are subject to normal and customary conditions.  For example, each
contract is contingent upon the respective purchaser's satisfaction with the
results of its due diligence inspection and can be terminated by the purchaser
within approximately forty-five days from the date of the contract.  In
September 1998, prior to the expiration of the due diligence period, the
purchaser elected to terminate the sales contract for Devonshire.  The parties
extended the due diligence period for Springfield from September 1998 until
October 9, 1998.  As of October 9, 1998, the Partnership had not received notice
of the purchaser's election to terminate the contract based on the results of
its due diligence inspection.  However, since the Springfield property is
presently encumbered by a mortgage loan that cannot yet be prepaid, this
contract is still contingent upon the lender's consent to the purchasers'
assumption of the mortgage loan.  As of November 5, 1998, the purchaser has not
received consent of the lender to assume the property's mortgage loan.  In the
event of sale of this property, the Partnership's investment in and advances to
partnerships would be reduced accordingly.  Of the six Local Partnerships in
which the Partnership had invested as of September 30, 1998 and December 31,
1997, Springfield represented approximately 31% and 18%, respectively, of the
total investments in and advances to partnerships.  For the nine months ended
September 30, 1998 and 1997, distributions from this Local Partnership
represented approximately 11% and 0%, respectively, of total distributions from
Local Partnerships.  The Partnership's share of income from Springfield was
$62,209 and $164,487 for the three and nine months ended September 30, 1998,
respectively, and $63,948 and $219,716 for the three and nine months ended
September 30, 1997, respectively.  There is no assurance that sale of the
Springfield property will occur.

     Due to the impending and likely sale of the Springfield property, the
Partnership's basis in this Local Partnership, which was $281,494, has been
reclassified as an investment in partnership held for sale in the accompanying
consolidated balance sheet at September 30, 1998.  

                               Paradise Foothills
                               ------------------

     The Partnership defaulted on its purchase money note relating to Paradise
Associates, L.P. (Paradise Foothills) when the note matured on January 30, 1996
and was not paid.  The default amount included principal and accrued interest of
$230,000 and $371,464, respectively.  As of November 5, 1998, principal and
accrued interest totaling $230,000 and $547,033, respectively, were due.  The
Managing General Partner made an offer for an extension of the purchase money
note maturity date until May 31, 2003, coterminous with the expiration of the
related Local Partnership's provisional workout agreement related to its
mortgage loan.  As of November 5, 1998, the Managing General Partner is awaiting

                                       -7-
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

a response from the noteholder.  There is no assurance that the Managing General
Partner will reach an agreement of any kind with the noteholder.  Should the
noteholder begin foreclosure proceedings on the Partnership's interest in the
Local Partnership, the Managing General Partner intends to vigorously contest
such action.  Additionally, the holder of the loan secured by the mortgage on
Paradise Foothills has attempted to terminate the provisional workout agreement
related to the property.  The local managing general partner is disputing the
purported termination, and since July, 1997, has not received any response from
the mortgagee.  Should mortgagee begin foreclosure proceedings, the local
managing general partner intends to vigorously contest such action.  However,
due to possible foreclosure actions by the noteholder and/or the mortgagee,
there can be no assurance that the Partnership will be able to retain its
interest in the Local Partnership.  The uncertainty regarding the continued
ownership of the Partnership's interest in the related Local Partnership does
not impact the Partnership's financial condition, as discussed above.

                                   The Pointe
                                   ----------

     Mesa Partners Limited Partnership (The Pointe), located in El Paso, Texas,
modified its mortgage loan in 1987.  In connection with the loan modification,
the Partnership loaned $262,500 to the Local Partnership in 1987.  Repayment of
this loan, with simple interest at 9% per annum, is expected to occur upon sale
or refinancing of the property.  As of September 30, 1998 and December 31, 1997,
accrued interest was $263,532 and $245,813, respectively.  Currently, the local
managing general partner is investigating the possibility of either refinancing
the Local Partnership's mortgage loan or selling the property.  There is no
assurance that a refinancing or sale will occur.

                                   River Place
                                   -----------

     Purchase money notes relating to River Place, Ltd. (River Place) totaling
$2,500,000 plus accrued interest were originally scheduled to mature on December
31, 1995.  On December 27, 1995, the Managing General Partner entered into an
agreement with the noteholders which granted the noteholders three options to
purchase the Partnership's 98.99% limited partnership interest in River Place
over a two-year period.  Purchase money note interest of $821,528, which accrued
during 1995, was forgiven by the noteholders as part of the agreement.  During
1995 and 1996, the noteholders purchased 9.9% and 39.6% interests, respectively,
in River Place from the Partnership in exchange for the forgiveness of purchase
money note principal and interest aggregating $1,250,000 and $1,967,568,
respectively.  

     On February 18, 1997, certain of the noteholders holding notes with an
outstanding principal and accrued interest balance of $650,000 and $1,348,641,
respectively, foreclosed on 25.73% of the Partnership's remaining 49.49%
interest in River Place, resulting in a net financial statement gain of
approximately $1.4 million, and a federal tax gain of approximately $1.9 million
in 1997.  On February 21, 1997, certain of the noteholders purchased the
Partnership's remaining 23.76% interest in River Place from the Partnership in
exchange for the forgiveness of purchase money note principal and accrued
interest of $600,000 and $434,616, respectively, resulting in a net financial
statement gain of approximately $468,000, and a federal tax gain of

                                       -8-
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

approximately $900,000 in 1997.  As a result of the noteholders' purchase of the
Partnership's remaining interest in River Place, the Partnership no longer has
an ownership interest in the Local Partnership.  In accordance with the purchase
option agreement, CRHC, Inc., an affiliate of the Managing General Partner,
transferred its .01% general partner interest in River Place to the noteholders
and/or their assignees.  Pursuant to the agreement, the noteholders or an
affiliate paid a fee into escrow to the Partnership of $35,000.  This fee, and
interest accrued thereon totaling $1,353, were released to the Partnership in
accordance with the purchase option agreement, on March 17, 1997.

                           Combined Local Partnerships
                           ---------------------------

     The following are combined statements of operations for the six Local
Partnerships in which the Partnership has invested as of September 30, 1998 and
1997.  The 1997 results include River Place and Deerfield through the respective
dates of sale and foreclosure.  The statements have been compiled from
information supplied by the management agents of the projects and are unaudited.





































                                       -9-
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued


                          COMBINED STATEMENTS OF OPERATIONS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                            For the three months ended            For the nine months ended
                                                                   September 30,                         September 30,
                                                           -----------------------------        -----------------------------
                                                               1998             1997                1998             1997
                                                           ------------     ------------        ------------     ------------
<S>                                                        <C>              <C>                 <C>              <C>
Revenue:
  Rental revenue                                           $  2,206,762     $  1,976,221        $  6,259,373     $  6,133,165
  Other                                                         133,592           97,031             356,546          300,002
                                                           ------------     ------------        ------------     ------------
                                                              2,340,354        2,073,252           6,615,919        6,433,167
                                                           ------------     ------------        ------------     ------------

Expenses:
  Operating                                                     840,541          977,013           2,937,636        3,057,783
  Interest                                                      783,073          733,846           2,349,219        2,229,498
  Depreciation and amortization                                 358,852          361,284           1,076,563        1,114,904
                                                           ------------     ------------        ------------     ------------
                                                              1,982,466        2,072,143           6,363,418        6,402,185
                                                           ------------     ------------        ------------     ------------
Net income                                                 $    357,888     $      1,109        $    252,501     $     30,982
                                                           ============     ============        ============     ============

</TABLE>

     As of both September 30, 1998 and December 31, 1997, the Partnership's
share of cumulative losses to date for four of the six Local Partnerships
exceeded the amount of the Partnership's investments in and advances to those
Local Partnerships by $7,873,683 and $7,522,459, respectively.  As the
Partnership has no further obligation to advance funds or provide financing to
these Local Partnerships, the excess losses have not been reflected in the
accompanying consolidated financial statements.


3.   RELATED-PARTY TRANSACTIONS

     In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner for its direct expenses
in managing the Partnership.  The Partnership paid $14,229 and $57,793 for the
three and nine months ended September 30, 1998, respectively and $13,083 and
$47,265 for the three and nine months ended September 30, 1997, respectively, as
direct reimbursement of expenses incurred on behalf of the Partnership.  Such
expenses are included in the accompanying consolidated statements of operations
as general and administrative expenses.  Additionally, in accordance with the
terms of the Partnership Agreement, the Partnership is obligated to pay an
annual


                                     -10-
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

3.   RELATED-PARTY TRANSACTIONS - Continued

incentive management fee (the Management Fee) after all other expenses of the
Partnership are paid.  The Partnership paid the Managing General Partner a
Management Fee of $24,482 and $73,447 for the three and nine months ended
September 30, 1998, respectively, and like amounts for the three and nine months
ended September 30, 1997.



















































                                      -11-
<PAGE>
PART I.   FINANCIAL INFORMATION
          ---------------------
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          -------------------------------------------------
               CONDITION AND RESULTS OF OPERATIONS
                -----------------------------------


     Capital Realty Investors-85 Limited Partnership's (the Partnership)
Management's Discussion and Analysis of Financial Condition and Results of
Operations section contains information that may be considered forward looking,
including statements regarding the effect of governmental regulations.  Actual
results may differ materially from those described in the forward looking
statements and will be affected by a variety of factors including national and
local economic conditions, the general level of interest rates, terms of
governmental regulations that affect the Partnership and interpretations of
those regulations, the competitive environment in which the Partnership
operates, and the availability of working capital.

                          Financial Condition/Liquidity
                          -----------------------------

     The Partnership's liquidity, with unrestricted cash resources of $2,171,496
and $1,798,455 as of September 30, 1998 and December 31, 1997, respectively,
along with anticipated future cash distributions from the Local Partnerships,
are expected to meet its current and anticipated operating cash needs.  As of
November 5, 1998, there were no material commitments for capital expenditures.

     The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having a principal balance of
$2,348,000 plus accrued interest of $6,089,448 as of September 30, 1998, are
payable in full upon the earliest of: (1) sale or refinancing of the respective
Local Partnership's rental property; (2) payment in full of the respective Local
Partnership's permanent loan; or (3) maturity.  A purchase money note in the
principal amount of $230,000 matured on January 30, 1996 but has not been paid
or extended.  Purchase money notes having a principal balance of $250,000 and
$1,250,000 matured on January 1, 1997 and February 1, 1997, respectively, and
the Partnership's obligation with respect to these notes has been satisfied. 
The remaining purchase money notes mature from 2001 to 2003.  See the notes to
the consolidated financial statements for additional information pertaining to
these purchase money notes.

     The purchase money notes, which are nonrecourse to the Partnership, are
generally secured by the Partnership's interest in the respective Local
Partnerships.  There is no assurance that the underlying properties will have
sufficient appreciation and equity to enable the Partnership to pay the purchase
money notes' principal and accrued interest when due.  If a purchase money note
is not paid in accordance with its terms, the Partnership will either have to
renegotiate the terms of repayment or risk losing its partnership interest in
the Local Partnership.  The Partnership's inability to pay certain of the
purchase money note principal and accrued interest balances when due, and the
resulting uncertainty regarding the Partnership's continued ownership interest
in the related Local Partnerships, does not impact the Partnership's financial
condition because the purchase money notes are nonrecourse and secured solely by
the Partnership's interest in the related Local Partnerships.  Therefore, should
the investment in any of the Local Partnerships with maturing purchase money
notes not produce sufficient value to satisfy the related purchase money notes,
the Partnership's exposure to loss is limited because the amount of the
nonrecourse indebtedness of each of the maturing purchase money notes exceeds
the carrying amount of the investment in and advances to each of the related
Local Partnerships.  Thus, even a complete loss of one of these Local
Partnerships would not have a material impact on the financial condition of the


                                      -12-
<PAGE>
PART I.   FINANCIAL INFORMATION
          ---------------------
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          -------------------------------------------------
               CONDITION AND RESULTS OF OPERATIONS - Continued
               -----------------------------------

Partnership.  See further discussion of certain purchase money notes in the
footnotes to the consolidated financial statements.

     The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's debt obligations.  These alternatives
include, among others, retaining the cash available for distribution to meet the
purchase money note requirements, buying out certain purchase money notes at a
discounted price, extending the due dates of certain purchase money notes, or
refinancing the respective properties' underlying debt and using the
Partnership's share of the proceeds to pay or buy down certain purchase money
note obligations.  See  the notes to the consolidated financial statements for
alternatives relating to specific properties.

     Included in due on investments in partnerships is $174,600 due to a local
general partner at both September 30, 1998 and December 31, 1997; accrued
interest payable thereon was $75,600 at both September 30, 1998 and December 31,
1997.  These amounts will be paid upon the occurrence of certain specified
events, as outlined in the respective partnership's agreement.

     The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements. 
For the nine months ended September 30, 1998 and 1997, the receipt of
distributions from partnerships and existing cash resources were adequate to
support operating cash requirements.

                              Results of Operations
                              ---------------------

     The Partnership recognized net income for the three months ended September
30, 1998 as opposed to net loss during the corresponding period in 1997
principally due to an increase in share of income from partnerships, which was
primarily due to increased income and decreased operating expenses at one
property.  Contributing to the increase in the Partnership's net income was an
increase in interest income due to higher cash and cash equivalent balances. 
Partially offsetting the increase in the Partnership's net income was an
increase in general and administrative expenses primarily due to higher payroll
expenses.

     The Partnership incurred a net loss for the nine months ended September 30,
1998, as compared to net income during the corresponding period in 1997,
principally due to the gain on disposition of investment in partnership or
extraordinary gain on forgiveness of accrued interest related to the sale and
foreclosure of the Partnership's remaining interests in River Place and
Deerfield during 1997, as discussed in the notes to the consolidated financial
statements.  Contributing to the net loss was a decrease in other income
primarily due to the receipt of cash during 1997 which was previously held in
escrow related to River Place.  Also contributing to the Partnership's net loss
was an increase in general and administrative expenses, as discussed above. 
Partially offsetting the net loss was a decrease in interest expense due to the
payoff of the debt related to River Place and Deerfield during 1997. 

     For financial reporting purposes, the Partnership, as a limited partner in
the Local Partnerships, does not record losses from the Local Partnerships in
excess of its investment to the extent that the Partnership has no further
obligation to advance funds or provide financing to the Local Partnerships.  As
a result, the Partnership's recognized losses for the three and nine months

                                      -13-
<PAGE>
PART I.   FINANCIAL INFORMATION
          ---------------------
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          -------------------------------------------------
               CONDITION AND RESULTS OF OPERATIONS - Continued
               -----------------------------------

ended September 30, 1998 did not include losses of $117,075 and $351,224,
respectively, compared to excluded losses of $144,412 and $433,236 for the three
and nine months ended September 30, 1997, respectively.

     No other significant changes in the Partnership's operations have taken
place during this period.

                            Year 2000 Computer Issue
                            ------------------------

     The Year 2000 ("Y2K") computer issue refers to the inability of many
computer systems in use today to recognize "00" in the date field as the year
2000 and to recognize the year 2000 as a leap year.  The Y2K problem arose
because, for many years, computer software programs, including programs embedded
in hardware, utilized only the last two digits to specify the year with the
assumption that the first two digits were "19."  As a result, such programs may
not be able to recognize and process dates beyond 1999; rather they may
recognize and process "00," "01," "02,", etc., incorrectly as 1900, 1901, 1902,
instead of as 2000, 2001, 2002.  In the opinion of computer experts, this could
cause such programs to create erroneous results, malfunction, or fail completely
unless corrective measures are taken.

     The Partnership utilizes software and related computer technologies
essential to its operations that will be affected by the Y2K issue.  To address
the issue, the Managing General Partner has developed and is currently
implementing a plan (the "Y2K Project") designed to ensure that the Y2K date
change will not have an adverse impact on the Partnership's operations.  The Y2K
Project is on schedule and the Managing General Partner expects completion by
the end of 1999.

     The Y2K Project consists of four phases -- Planning, Assessment,
Implementation and Testing.  The Planning Phase began early in 1998 and is
substantially complete.  Under the Planning Phase, the Managing General Partner
conducted an inventory of all internal hardware and software systems, data
interfaces, business operations and non-information technology functions which
may be susceptible to the Y2K issue.  The Managing General Partner expects final
completion of this phase by November 30, 1998.  The Assessment Phase is
currently underway.  Under the Assessment Phase, all applications and functions
identified in the Planning Phase are being analyzed to determine Y2K compliance
and the materiality of each identified risk is being determined.  In the event
of noncompliance, for a material risk, timetables for corrective action, as well
as estimated costs to achieve compliance, are being determined.  Completion of
this phase is expected by December 31, 1998.  The Implementation Phase is also
underway.  Renovation and replacement of existing internal hardware and software
systems has begun and completion is expected by June 1999.  Additionally, the
Managing General Partner is currently working with third party vendors and
service providers to verify their Y2K compliance.  Final completion of this
phase is expected by June 1999.  The Testing Phase, which will include testing
of internal applications as well as third party systems, is expected to begin
during January 1999 and continue throughout 1999.  Contingency planning is
scheduled to commence during the fourth quarter 1998 and be completed by year-
end 1999.  Although the expense associated with the Y2K Project cannot presently
be determined, the Managing General Partner does not expect it to be material. 




                                      -14-
<PAGE>
PART II.  OTHER INFORMATION
          -----------------
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES
          -------------------------------

                               Paradise Foothills
                               ------------------

     The Partnership defaulted on its purchase money note relating to Paradise
Associates, L.P. (Paradise Foothills) when the note matured on January 30, 1996
and was not paid.  The default amount included principal and accrued interest of
$230,000 and $371,464, respectively.  As of November 5, 1998, principal and
accrued interest totaling $230,000 and $547,033, respectively, were due.  The
Managing General Partner made an offer for an extension of the purchase money
note maturity date until May 31, 2003, coterminous with the expiration of the
related Local Partnership's provisional workout agreement related to its
mortgage loan.  As of November 5, 1998, the Managing General Partner is awaiting
a response from the noteholder.  There is no assurance that the Managing General
Partner will reach an agreement of any kind with the noteholder.  Should the
noteholder begin foreclosure proceedings on the Partnership's interest in the
Local Partnership, the Managing General Partner intends to vigorously contest
such action.  Additionally, the holder of the loan secured by the mortgage on
Paradise Foothills has attempted to terminate the provisional workout agreement
related to the property.  The local managing general partner is disputing the
purported termination, and since July, 1997, has not received any response from
the mortgagee.  Should mortgagee begin foreclosure proceedings, the local
managing general partner intends to vigorously contest such action.  However,
due to possible foreclosure actions by the noteholder and/or the mortgagee,
there can be no assurance that the Partnership will be able to retain its
interest in the Local Partnership.  The uncertainty regarding the continued
ownership of the Partnership's interest in the related Local Partnership does
not impact the Partnership's financial condition, as discussed above.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
          --------------------------------

     a.   None

     b.   No Reports on Form 8-K were filed with the Commission during the
          quarter ended September 30, 1998.

     All other items are not applicable.





















                                      -15-
<PAGE>

                                    SIGNATURE

     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.

                         CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
                         -----------------------------------------------
                         (Registrant)

                         by: C.R.I., Inc.
                             -------------------------------------------
                             Managing General Partner



November 5, 1998             by: /s/ Michael J. Tuszka
----------------                 ---------------------------------------
DATE                             Michael J. Tuszka
                                   Vice President
                                   and Chief Accounting Officer
                                   (Principal Financial Officer
                                   and Principal Accounting Officer)








































                                      -16-
<PAGE>


                                  EXHIBIT INDEX
                                  -------------


Exhibit                                         Method of Filing
-------                                   -----------------------------

27        Financial Data Schedule         Filed herewith electronically






















































                                      -17-