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


                   Quarterly Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934


For the Quarter Ended    March 31, 1997
                         --------------

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


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
   --------------------------------------------------------------------------
             (Exact name of registrant 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
   --------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X]   No [ ]   

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.


         Class                         Outstanding at March 31, 1997
--------------------------         --------------------------------------
    (Not applicable)                          (Not applicable)
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                               INDEX TO FORM 10-Q

                      FOR THE QUARTER ENDED MARCH 31, 1997



                                                                 Page
                                                                 ----

PART I.   Financial Information (Unaudited)

Item 1.   Financial Statements

          Consolidated Balance Sheets - March 31, 1997 and
            December 31, 1996 . . . . . . . . . . . . . . . .        1

          Consolidated Statements of Operations - for the
            three months ended March 31, 1997 and 1996  . . .        2

          Consolidated Statements of Cash Flows - for the
            three months ended March 31, 1997 and 1996  . . .        3

          Notes to Consolidated Financial Statements  . . . .        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 . . . . . . . . . .       16

Item 6.   Exhibits and Reports on Form 8-K  . . . . . . . . .       17

Signature   . . . . . . . . . . . . . . . . . . . . . . . . .       18

Exhibit Index   . . . . . . . . . . . . . . . . . . . . . . .       19
<PAGE>
PART I.   FINANCIAL INFORMATION
          ---------------------
ITEM 1.   FINANCIAL STATEMENTS
          --------------------

                        CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                                 CONSOLIDATED BALANCE SHEETS

                                          ASSETS


<TABLE>
<CAPTION>
                                                                                                 March 31,       December 31,
                                                                                                   1997             1996
                                                                                               -------------     ------------
                                                                                                (Unaudited)
<S>                                                                                            <C>               <C>
Investments in and advances to partnerships                                                    $     764,111     $     707,182
Investment in partnership held for sale                                                                   --         1,303,669
Cash and cash equivalents                                                                          1,256,687         1,266,939
Acquisition fees, principally paid to related parties, net of
  accumulated amortization of $109,707 and $141,860,
  respectively                                                                                       188,194           190,677
Property purchase costs, net of accumulated amortization of
  $110,508 and $149,703, respectively                                                                184,179           186,635
Other assets                                                                                           3,056             4,524
                                                                                               -------------     -------------

      Total assets                                                                             $   2,396,227     $   3,659,626
                                                                                               =============     =============

                             LIABILITIES AND PARTNERS' DEFICIT

Due on investments in partnerships                                                             $   2,522,600     $   4,022,600
Accrued interest payable                                                                           4,825,555         7,116,193
Accounts payable and accrued expenses                                                                 64,063            49,603
                                                                                               -------------     -------------
      Total liabilities                                                                            7,412,218        11,188,396
                                                                                               -------------     -------------
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                                                                           (23,649,956)      (26,162,735)
                                                                                               -------------     -------------
      Total partners' deficit                                                                     (5,015,991)       (7,528,770)
                                                                                               -------------     -------------
      Total liabilities and partners' deficit                                                  $   2,396,227     $   3,659,626
                                                                                               =============     =============
</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

                                       (Unaudited)
<TABLE>
<CAPTION>
                                                                                                For the three months ended
                                                                                                         March 31,
                                                                                               ----------------------------
                                                                                                   1997              1996
                                                                                               ------------      ------------
<S>                                                                                            <C>               <C>
Share of income from partnerships                                                              $     51,023      $    178,389
                                                                                               ------------      ------------
Other revenue and expenses:
  Revenue:
    Interest and other income                                                                        58,228            19,268
                                                                                               ------------      ------------
  Expenses:
    Interest                                                                                        240,290           238,556
    General and administrative                                                                       38,236            35,054
    Management fee                                                                                   24,482            24,482
    Professional fees                                                                                15,785            17,591
    Amortization                                                                                      4,939             4,939
                                                                                               ------------      ------------
                                                                                                    323,732           320,622
                                                                                               ------------      ------------
       Total other revenue and expenses                                                            (265,504)         (301,354)
                                                                                               ------------      ------------

Loss before extraordinary gain on disposition
  of investment in partnership                                                                     (214,481)         (122,965)

Extraordinary gain on disposition of investment
  in partnership or forgiveness of accrued interest                                               2,727,260         1,472,332
                                                                                               ------------      ------------
Net income                                                                                        2,512,779         1,349,367

Accumulated losses, beginning of period                                                         (26,162,735)      (26,695,275)
                                                                                               ------------      ------------
Accumulated losses, end of period                                                              $(23,649,956)     $(25,345,908)
                                                                                               ============      ============
Income allocated to General Partners (1.51%)                                                   $     37,943      $     20,375
                                                                                               ============      ============
Income allocated to Initial and Special
  Limited Partners (2.49%)                                                                     $     62,568      $     33,599
                                                                                               ============      ============
Income allocated to BAC Holders (96%)                                                          $  2,412,268      $  1,295,393
                                                                                               ============      ============
Income per BAC based on 21,195 and
  21,200 BACs outstanding at March 31, 1997
  and 1996, respectively                                                                       $     113.81      $      61.10
                                                                                               ============      ============
</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 CASH FLOWS

                                      (Unaudited)

<TABLE>
<CAPTION>

                                                                                           For the three months ended
                                                                                                    March 31,
                                                                                          ----------------------------
                                                                                              1997            1996
                                                                                          ------------    ------------
<S>                                                                                       <C>             <C>
Cash flows from operating activities:
  Net income                                                                              $  2,512,779    $  1,349,367

  Adjustments to reconcile net income to net cash used in operating
    activities:
    Share of income from partnerships                                                          (51,023)       (178,389)
    Increase in accrued interest receivable on advances to
      partnerships                                                                              (5,905)         (4,066)
    Amortization of deferred costs                                                               4,939           4,939
    Payment of purchase money note interest                                                   (122,888)             --
    Extraordinary gain on disposition of investment in partnership                          (2,727,260)     (1,472,332)

    Changes in assets and liabilities:
      Decrease (increase) in other assets                                                        1,468          (1,040)
      Increase in accrued interest payable                                                     240,290         238,556
      Increase (decrease) in accounts payable and accrued expenses                              14,460         (19,179)
                                                                                          ------------    ------------
         Net cash used in operating activities                                                (133,140)        (82,144)
                                                                                          ------------    ------------
Cash flows from investing activities:
  Receipt of distributions from partnerships                                                   122,888          97,372
  Repayment of advances to partnerships                                                             --          32,992
  Investments in and advances to partnership                                                        --          (3,660)
                                                                                          ------------    ------------
         Net cash provided by investing activities                                             122,888         126,704
                                                                                          ------------    ------------

Net (decrease) increase in cash and cash equivalents                                           (10,252)         44,560

Cash and cash equivalents, beginning of period                                               1,266,939       1,151,683
                                                                                          ------------    ------------
Cash and cash equivalents, end of period                                                  $  1,256,687    $  1,196,243
                                                                                          ============    ============

</TABLE>






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

                                     - 3 -
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 (Unaudited)

1.   BASIS OF PRESENTATION

     In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited consolidated financial statements contain all adjustments
of a normal recurring nature necessary to present fairly the consolidated
financial position of Capital Realty Investors-85 Limited Partnership (the
Partnership) as of March 31, 1997 and December 31, 1996 and its consolidated
results of operations for the three months ended March 31, 1997 and 1996 and its
consolidated cash flows for the three months ended March 31, 1997 and 1996.

     These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission.  Certain
information and note disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. While the Managing General Partner believes that
the disclosures presented are adequate to make the information not misleading,
it is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes included in
the Partnership's Annual Report filed on Form 10-K for the year ended
December 31, 1996.

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 the accrued interest of $4,750,155 as of March 31, 1997, are
payable in full upon the earliest of: (i) sale or refinancing of the respective
Local Partnership's rental property; (ii) payment in full of the respective
Local Partnership's permanent loan; or (iii) maturity.  Purchase money notes in
an aggregate principal amount of $230,000 matured on January 30, 1996 but have
not been paid, as discussed below.  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, as discussed below.  The remaining purchase money notes
mature from 2001 to 2003.  The purchase money notes are generally secured by the
Partnership's interest in the respective Local Partnership.  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
Managing General Partner is continuing to investigate possible alternatives to
reduce the Partnership's long-term 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 off or buy down certain purchase
money note obligations.

     Interest expense on the Partnership's purchase money notes for the three
months ended March 31, 1997 and 1996 was $240,290 and $238,556, respectively. 
The accrued interest on the purchase money notes of $4,750,155 and $7,040,793 as
of March 31, 1997 and December 31, 1996, respectively, is due on the respective
maturity dates of the purchase money notes or earlier, in some instances, if the
pertinent Local Partnership has distributable net cash flow, as defined in the
relevant Local Partnership agreements.

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     As of March 31, 1997 and December 31, 1996, the Partnership's obligations
with respect to its investments in Local Partnerships included $174,600 due to
local general partners, plus accrued interest on these obligations of $75,400.

     Purchase money notes relating to River Place, Ltd. (River Place) totalling
$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 partner interest in River Place over a
two-year period.  Under the terms of the agreement, the purchase money note
maturity dates were extended to February 1, 1997, with interest to accrue from
January 1, 1996 to February 1, 1997 at the Applicable Federal Rate for short-
term obligations in effect at January 1, 1996 (5.65%), compounded annually. 
Purchase money note interest of $821,528 which accrued during 1995 has been
forgiven by the noteholders as part of the agreement.  Also as part of the
agreement, any future cash flow distributions received by the Partnership from
River Place were applied towards any unforgiven purchase money note interest
accrued prior to December 31, 1994.  For the three months ended March 31, 1997
and 1996, cash flow distributions of $122,888 and $0, respectively, were paid
directly by River Place to the noteholders to be applied to such interest.

     On December 31, 1995, the noteholders purchased a 9.9% interest in River
Place from the Partnership in exchange for the forgiveness of purchase money
note principal and accrued interest of $250,000 and $306,015, respectively,
resulting in a net financial statement gain and a net federal tax gain of
$258,957 and $470,855, respectively, in 1995.  On January 2, 1996, the
noteholders purchased an additional 39.6% interest in River Place from the
Partnership in exchange for the forgiveness of purchase money note principal and
accrued interest of $1,000,000 and $1,661,553, respectively, resulting in a net
financial statement gain and a net federal tax gain of approximately $1.5
million and approximately $2.3 million, respectively, in 1996.  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 in 1997.  The
federal tax gain is estimated to be approximately $1.9 million.  On February 21,
1997, 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 in 1997 of
approximately $468,000.  The federal tax gain is estimated to be approximately
$915,000.  As a result of the noteholders' purchase of the Partnership's
remaining interest in River Place, Ltd., 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, has
transferred its .01% general partner interest in River Place, Ltd. 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
plus interest accrued thereon totaling $1,353 was released to the Partnership in
accordance with the agreement with the noteholders, on March 17, 1997.

     The Partnership's investment in River Place represented approximately 0%
and 36% of the Partnership's total assets as of March 31, 1997 and December 31,
1996, respectively.  In addition, for the three months ended March 31, 1997 and

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

1996, distributions from River Place, Ltd. represented approximately 100% and
0%, respectively, of total distributions from Local Partnerships.  During 1997
and 1996, 100% of the distributions from River Place were paid directly to the
purchase money note holders.  The Partnership's share of income from River Place
was approximately $12,500 and $24,000 for the periods ended March 31, 1997 and
1996, respectively.

     The Partnership defaulted on its purchase money notes relating to Paradise
Associates, L.P. (Paradise Foothills), when the notes matured on January 30,
1996 and were not paid.  The default amount included principal and accrued
interest of $230,000 and $371,464, respectively.  As of April 29, 1997,
principal and accrued interest totalling $230,000 and $447,612, respectively,
were due.  The Managing General Partner made an offer to the noteholders to
extend the maturity dates to coincide with the completion of the property's
nine-year mortgage workout agreement on May 31, 2003.  The noteholders rejected
the offer and, on March 28, 1996, proposed a one-year extension.  The Managing
General Partner has subsequently made a counter-offer for a nine-year extension,
and as of April 29, 1997, the Managing General Partner is awaiting a response
from the purchase money note holders.  There is no assurance that the Managing
General Partner will reach an agreement of any kind with the noteholders. 
Should the noteholders begin foreclosure proceedings on the Partnership's
interest in the related Local Partnership, the Partnership intends to vigorously
defend such action.  However, there can be no assurance that the Partnership
will be able to retain its interest in the Local Partnership.  The uncertainty
about the continued ownership of the Partnership's interest in the related Local
Partnership does not impact the Partnership's financial condition because the
related purchase money note is nonrecourse and secured solely by the
Partnership's interest in the Local Partnership.  Therefore, should the
investment in Paradise Foothills not produce sufficient value to satisfy the
purchase money note related to Paradise Foothills, the Partnership's exposure to
loss is limited since the amount of the nonrecourse indebtedness exceeds the
carrying amount of the investment in and advances to the Local Partnership. 
Thus, even a complete loss of this investment would not have a material impact
on the operations of the Partnership.

     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 the loan documents.  The Local Partnership
defaulted on its mortgage loan in 1990.  After continuous negotiations between
the Local Partnership and HUD, HUD notified Deerfield that it had offered its
mortgage loan for sale in September 1995.  A new mortgagee purchased the loan
from HUD on November 16, 1995.  On November 16, 1995, the Local Partnership
received a notice of default, acceleration and assignment of rents from the new
mortgagee.  The new mortgagee was scheduled to foreclose on the property on
December 21, 1995.  In order to protect its assets, the Local Partnership filed
for bankruptcy protection under Chapter 11 in the State of Maryland on December
20, 1995.  The new mortgagee filed motions with the bankruptcy court for
dismissal and for relief from stay.  On February, 27, 1996, prior to any motion
on these hearings, Deerfield entered into a term sheet agreement with the new
mortgagee pursuant to which Deerfield transferred management of the property to
the new mortgagee on April 1, 1996.  Additionally, pursuant to the term sheet
agreement, Deerfield agreed, at the new mortgagee's election, to either
voluntarily transfer ownership of the property to the new mortgagee, or not
oppose a foreclosure action, no earlier than January 6, 1997, without further

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

consideration, if the mortgage loan default had not been cured by that date.  On
March 20, 1996, the bankruptcy court dismissed the bankruptcy case, with the
acquiescence of the Local Partnership, subject to the provisions of the term
sheet agreement.  On January 7, 1997, in accordance with the term sheet
agreement, the new mortgagee foreclosed on the property.

     All net cash flow generated by Deerfield prior to the foreclosure was
applied towards outstanding accrued interest on the defaulted first mortgage
loan.  On April 25, 1996, the Partnership received $81,736 which represented the
release of the operating account for the Local Partnership.

     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 are nonrecourse  and secured solely by the
Partnership's interest in the related Local Partnership, the Partnership's
obligation regarding the purchase money note was retired in conjunction with the
transfer of ownership in Deerfield to the new mortgagee.  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 fully amortized as of
December 31, 1995 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 is estimated to
be approximately $3.1 million.

     During prior years, the Partnership loaned a total of $199,087 to Deerfield
to fund operating deficits.  For financial statement purposes, these loans have
been reduced to zero as they were deemed uncollectible.  During 1996, the
Partnership received net payments from Deerfield on these advances of $71,405. 
As these payments were in excess of the Partnership's investment in Deerfield,
they were included as income from partnerships during 1996.  The Partnership
does not anticipate further payment from Deerfield due to the transfer of the
property to the new mortgagee.

     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 March 31, 1997 and December 31, 1996,
accrued interest was $228,095 and $222,188, respectively.

     The Partnership has been informed by Equity Resources Bay Fund (Bay Fund),
a Massachusetts limited partnership which is affiliated with Equity Resources
Group, the general partner of various partnerships that are limited partners in
the Partnership, and Smithtown Bay, LLC (Smithtown) that they may initiate a
tender offer to purchase additional BACs in the Partnership, but in no case more
than a 5% interest in the Partnership.  Bay Fund and Smithtown, which are
unaffiliated with CRI, have stated that they may make the offers for the express
purpose of holding the BACs as a long-term investment and not with a view to
resale.  Neither Bay Fund nor Smithtown have indicated the price per BAC which
they may offer for the BACs in the Partnership.  In the event that a tender
offer is initiated by either of these entities, the purchase price will be

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

determined solely at the discretion of the entities and may not necessarily
represent the fair market value of the BACs.  The General Partner takes no
position as to recommending or not recommending these entities to make an offer,
nor will it take a position as to recommending or not recommending either of the
offers to investors, in the event that an offer is made.

     Other than the potential Bay Fund or Smithtown offers, it is not
anticipated that there will be any other market for resale of BACs in the
Partnership.  As a result, an investor may be unable to sell or otherwise
dispose of his or her interest in the Partnership.  There is no assurance that
Bay Fund or Smithtown will initiate a tender offer.

     The following are combined statements of operations for the six and eight
Local Partnerships in which the Partnership has invested as of March 31, 1997
and 1996, respectively.  The 1997 financial statements contain information for
Riverplace and Deerfield through the respective dates of sale and foreclosure. 
The statements are compiled from information supplied by the management agents
of the projects and are unaudited.





































                                       -8-
<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
                                                 March 31,
                                        -----------------------------
                                            1997            1996
                                        ------------    ------------
<S>                                     <C>             <C>
Revenue:
  Rental revenue                        $  2,158,679    $  2,378,404
  Other                                      103,618         111,274
                                        ------------    ------------
                                           2,262,297       2,489,678
                                        ------------    ------------

Expenses:
  Operating                                1,189,421       1,266,659
  Interest                                   761,802         827,641
  Depreciation and amortization              392,332         448,587
                                        ------------    ------------
                                           2,343,555       2,542,887
                                        ------------    ------------
Net loss                                $    (81,258)   $    (53,209)
                                        ============    ============

</TABLE>

     As of March 31, 1997 and December 31, 1996, the Partnership's share of
cumulative losses to date for three of the six and five of the eight Local
Partnerships, respectively, exceeds the amount of the Partnership's investments
in and advances to those Local Partnerships by $7,219,271 and $7,074,859,
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 $15,015 and $33,228 for the
three months ended March 31, 1997 and 1996, respectively, as direct reimburse-
ment of expenses incurred on behalf of the Partnership.  Such expenses are
included in the 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 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 for each of the three months ended March 31, 1997 and 1996.



                                       -9-
<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 contains information that may be considered forward looking.  This
information contains a number of risks and uncertainties, as discussed herein
and in the Partnership's Annual Report filed on Form
10-K, that could cause actual results to differ materially.

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

     The Partnership's liquidity, with unrestricted cash resources of $1,256,687
and $1,266,939 as of March 31, 1997 and December 31, 1996, respectively, along
with future cash distributions from Local Partnerships, is expected to meet its
current and anticipated operating cash needs.  The Partnership's remaining
obligations with respect to its investment in Local Partnerships of $250,000,
excluding purchase money notes and accrued interest, is not in excess of its
capital resources.  As of April 25, 1997, there are 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 the accrued interest of $4,750,155 as of March 31, 1997, are
payable in full upon the earliest of: (i) sale or refinancing of the respective
Local Partnership's rental property; (ii) payment in full of the respective
Local Partnership's permanent loan; or (iii) maturity.  Purchase money notes in
an aggregate principal amount of $230,000 matured on January 30, 1996 but have
not been paid, as discussed below.  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, as discussed below.  The remaining purchase money notes
mature from 2001 to 2003.  The purchase money notes are generally secured by the
Partnership's interest in the respective Local Partnership.  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
Managing General Partner is continuing to investigate possible alternatives to
reduce the Partnership's long-term 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 off or buy down certain purchase
money note obligations.

     As of March 31, 1997 and December 31, 1996, the Partnership's obligations
with respect to its investments in Local Partnerships included $174,600 due to
local general partners, plus accrued interest on these obligations of $75,400.

     Purchase money notes relating to River Place, Ltd. (River Place) totalling
$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 partner interest in River Place over a

                                      -10-
<PAGE>
PART I.   FINANCIAL INFORMATION
          ---------------------
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          -------------------------------------------------
               CONDITION AND RESULTS OF OPERATIONS - Continued
               -----------------------------------

two-year period.  Under the terms of the agreement, the purchase money note
maturity dates were extended to February 1, 1997, with interest to accrue from
January 1, 1996 to February 1, 1997 at the Applicable Federal Rate for short-
term obligations in effect at January 1, 1996 (5.65%), compounded annually. 
Purchase money note interest of $821,528 which accrued during 1995 has been
forgiven by the noteholders as part of the agreement.  Also as part of the
agreement, any future cash flow distributions received by the Partnership from
River Place were applied towards any unforgiven purchase money note interest
accrued prior to December 31, 1994.  For the three months ended March 31, 1997
and 1996, cash flow distributions of $122,888 and $0, respectively, were paid
directly by River Place to the noteholders to be applied to such interest.

     On December 31, 1995, the noteholders purchased a 9.9% interest in River
Place from the Partnership in exchange for the forgiveness of purchase money
note principal and accrued interest of $250,000 and $306,015, respectively,
resulting in a net financial statement gain and a net federal tax gain of
$258,957 and $470,855, respectively, in 1995.  On January 2, 1996, the
noteholders purchased an additional 39.6% interest in River Place from the
Partnership in exchange for the forgiveness of purchase money note principal and
accrued interest of $1,000,000 and $1,661,553, respectively, resulting in a net
financial statement gain and a net federal tax gain of approximately $1.5
million and approximately $2.3 million, respectively, in 1996.  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 in 1997.  The
federal tax gain is estimated to be approximately $1.9 million.  On February 21,
1997, 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 in 1997 of
approximately $468,000.  The federal tax gain is estimated to be approximately
$915,000.  As a result of the noteholders' purchase of the Partnership's
remaining interest in River Place, Ltd., 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, has
transferred its .01% general partner interest in River Place, Ltd. 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
plus interest accrued thereon totaling $1,353 was released to the Partnership in
accordance with the agreement with the noteholders, on March 17, 1997.

     The Partnership's investment in River Place represented approximately 0%
and 36% of the Partnership's total assets as of March 31, 1997 and December 31,
1996, respectively.  In addition, for the three months ended March 31, 1997 and
1996, distributions from River Place, Ltd. represented approximately 100% and
0%, respectively, of total distributions from Local Partnerships.  During 1997
and 1996, 100% of the distributions from River Place were paid directly to the
purchase money note holders.  The Partnership's share of income from River Place
was approximately $12,500 and $24,000 for the periods ended March 31, 1997 and
1996, respectively.

     The Partnership defaulted on its purchase money notes relating to Paradise
Associates, L.P. (Paradise Foothills), when the notes matured on January 30,
1996 and were not paid.  The default amount included principal and accrued
interest of $230,000 and $371,464, respectively.  As of April 29, 1997,

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

principal and accrued interest totalling $230,000 and $447,612, respectively,
were due.  The Managing General Partner made an offer to the noteholders to
extend the maturity dates to coincide with the completion of the property's
nine-year mortgage workout agreement on May 31, 2003.  The noteholders rejected
the offer and, on March 28, 1996, proposed a one-year extension.  The Managing
General Partner has subsequently made a counter-offer for a nine-year extension,
and as of April 29, 1997, the Managing General Partner is awaiting a response
from the purchase money note holders.  There is no assurance that the Managing
General Partner will reach an agreement of any kind with the noteholders. 
Should the noteholders begin foreclosure proceedings on the Partnership's
interest in the related Local Partnership, the Partnership intends to vigorously
defend such action.  However, there can be no assurance that the Partnership
will be able to retain its interest in the Local Partnership.  The uncertainty
about the continued ownership of the Partnership's interest in the related Local
Partnership does not impact the Partnership's financial condition because the
related purchase money note is nonrecourse and secured solely by the
Partnership's interest in the Local Partnership.  Therefore, should the
investment in Paradise Foothills not produce sufficient value to satisfy the
purchase money note related to Paradise Foothills, the Partnership's exposure to
loss is limited since the amount of the nonrecourse indebtedness exceeds the
carrying amount of the investment in and advances to the Local Partnership. 
Thus, even a complete loss of this investment would not have a material impact
on the operations of the Partnership.

     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 the loan documents.  The Local Partnership
defaulted on its mortgage loan in 1990.  After continuous negotiations between
the Local Partnership and HUD, HUD notified Deerfield that it had offered its
mortgage loan for sale in September 1995.  A new mortgagee purchased the loan
from HUD on November 16, 1995.  On November 16, 1995, the Local Partnership
received a notice of default, acceleration and assignment of rents from the new
mortgagee.  The new mortgagee was scheduled to foreclose on the property on
December 21, 1995.  In order to protect its assets, the Local Partnership filed
for bankruptcy protection under Chapter 11 in the State of Maryland on December
20, 1995.  The new mortgagee filed motions with the bankruptcy court for
dismissal and for relief from stay.  On February, 27, 1996, prior to any motion
on these hearings, Deerfield entered into a term sheet agreement with the new
mortgagee pursuant to which Deerfield transferred management of the property to
the new mortgagee on April 1, 1996.  Additionally, pursuant to the term sheet
agreement, Deerfield agreed, at the new mortgagee's election, to either
voluntarily transfer ownership of the property to the new mortgagee, or not
oppose a foreclosure action, no earlier than January 6, 1997, without further
consideration, if the mortgage loan default had not been cured by that date.  On
March 20, 1996, the bankruptcy court dismissed the bankruptcy case, with the
acquiescence of the Local Partnership, subject to the provisions of the term
sheet agreement.  On January 7, 1997, in accordance with the term sheet
agreement, the new mortgagee foreclosed on the property.

     All net cash flow generated by Deerfield prior to the foreclosure was
applied towards outstanding accrued interest on the defaulted first mortgage
loan.  On April 25, 1996, the Partnership received $81,736 which represented the
release of the operating account for the Local Partnership.

     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

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

included principal and accrued interest of $250,000 and $623,068, respectively. 
Since the purchase money notes are nonrecourse  and secured solely by the
Partnership's interest in the related Local Partnership, the Partnership's
obligation regarding the purchase money note was retired in conjunction with the
transfer of ownership in Deerfield to the new mortgagee.  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 fully amortized as of
December 31, 1995 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 is estimated to
be approximately $3.1 million.

     During prior years, the Partnership loaned a total of $199,087 to Deerfield
to fund operating deficits.  For financial statement purposes, these loans have
been reduced to zero as they were deemed uncollectible.  During 1996, the
Partnership received net payments from Deerfield on these advances of $71,405. 
As these payments were in excess of the Partnership's investment in Deerfield,
they were included as income from partnerships during 1996.  The Partnership
does not anticipate further payment from Deerfield due to the transfer of the
property to the new mortgagee.

     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 three months ended March 31, 1997, cash and cash equivalents decreased
due to the timing of receipt of cash distributions from the Local Partnerships. 
The Partnership anticipates that future cash distributions from the Local
Partnerships will be adequate to support operating requirements.

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

     The Partnership's net income for the three months ended March 31, 1997
increased from the corresponding period in 1996 primarily due to the
extraordinary gain on disposition of investment and forgiveness of accrued
interest related to the sale and foreclosure of the Partnership's remaining
interest in River Place and Deerfield, as discussed above.  Contributing to the
increase in the Partnership's net income was an increase in interest and other
income primarily due to the receipt of cash previously held in escrow related to
River Place, as discussed above.  Partially offsetting the increase in the
Partnership's net income was a decrease in share of income from partnerships
principally due to the repayment of an advance received from one Local
Partnership during 1996 which had previously been written off and higher
operating costs at one property 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 months ended March
31, 1997 did not include losses of $144,412, compared to excluded losses of
$159,114 for the three months ended March 31, 1996, respectively.

     Mesa Partners Limited Partnership (The Pointe), located in El Paso, Texas,
modified its mortgage loan in 1987.  In connection with the loan modification,

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

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 March 31, 1997 and December 31, 1996,
accrued interest was $228,095 and $222,188, respectively.

                                     General
                                     -------

     The Partnership has been informed by Equity Resources Bay Fund (Bay Fund),
a Massachusetts limited partnership which is affiliated with Equity Resources
Group, the general partner of various partnerships that are limited partners in
the Partnership, and Smithtown Bay, LLC (Smithtown) that they may initiate a
tender offer to purchase additional BACs in the Partnership, but in no case more
than a 5% interest in the Partnership.  Bay Fund and Smithtown, which are
unaffiliated with CRI, have stated that they may make the offers for the express
purpose of holding the BACs as a long-term investment and not with a view to
resale.  Neither Bay Fund nor Smithtown have indicated the price per BAC which
they may offer for the BACs in the Partnership.  In the event that a tender
offer is initiated by either of these entities, the purchase price will be
determined solely at the discretion of the entities and may not necessarily
represent the fair market value of the BACs.  The General Partner takes no
position as to recommending or not recommending these entities to make an offer,
nor will it take a position as to recommending or not recommending either of the
offers to investors, in the event that an offer is made.

     Other than the potential Bay Fund or Smithtown offers, it is not
anticipated that there will be any other market for resale of BACs in the
Partnership.  As a result, an investor may be unable to sell or otherwise
dispose of his or her interest in the Partnership.  There is no assurance that
Bay Fund or Smithtown will initiate a tender offer.


PART II.  OTHER INFORMATION
          -----------------
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES
          -------------------------------

     The Partnership defaulted on its purchase money notes relating to Paradise
Associates, L.P. (Paradise Foothills), when the notes matured on January 30,
1996 and were not paid.  The default amount included principal and accrued
interest of $230,000 and $371,464, respectively.  As of April 29, 1997,
principal and accrued interest totalling $230,000 and $447,612, respectively,
were due.  The Managing General Partner made an offer to the noteholders to
extend the maturity dates to coincide with the completion of the property's
nine-year mortgage workout agreement on May 31, 2003.  The noteholders rejected
the offer and, on March 28, 1996, proposed a one-year extension.  The Managing
General Partner has subsequently made a counter-offer for a nine-year extension,
and as of April 29, 1997, the Managing General Partner is awaiting a response
from the purchase money note holders.  There is no assurance that the Managing
General Partner will reach an agreement of any kind with the noteholders. 
Should the noteholders begin foreclosure proceedings on the Partnership's
interest in the related Local Partnership, the Partnership intends to vigorously
defend such action.  However, there can be no assurance that the Partnership
will be able to retain its interest in the Local Partnership.  The uncertainty
about the continued ownership of the Partnership's interest in the related Local
Partnership does not impact the Partnership's financial condition because the

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

related purchase money note is nonrecourse and secured solely by the
Partnership's interest in the Local Partnership.  Therefore, should the
investment in Paradise Foothills not produce sufficient value to satisfy the
purchase money note related to Paradise Foothills, the Partnership's exposure to
loss is limited since the amount of the nonrecourse indebtedness exceeds the
carrying amount of the investment in and advances to the Local Partnership. 
Thus, even a complete loss of this investment would not have a material impact
on the operations of the Partnership.



















































                                      -15-
<PAGE>
PART II.  OTHER INFORMATION
          -----------------
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
          --------------------------------

     No Reports on Form 8-K were filed with the Commission during the quarter
ended March 31, 1997.

     All other items are not applicable.























































                                      -16-
<PAGE>
                                    SIGNATURE


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly 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


April 29, 1997                  By: /s/ Susan R. Campbell
-------------------------           ---------------------------------
Date                                Susan R. Campbell
                                    Senior Vice President


                                    Signing on behalf of the
                                      Registrant and as Acting
                                      Chief Accounting Officer,
                                      Principal Financial and
                                      Principal Accounting Officer





































                                      -17-
<PAGE>


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


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

27        Financial Data Schedule         Filed herewith electronically






















































                                      -18-