UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   Form 10-QSB

(Mark One)
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                For the quarterly period ended March 31, 2004


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


             For the transition period from _________to _________

                         Commission file number 0-14530


                        DAVIDSON INCOME REAL ESTATE, L.P.
             (Exact Name of Registrant as Specified in Its Charter)



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

                          55 Beattie Place, PO Box 1089
                        Greenville, South Carolina 29602
                    (Address of principal executive offices)

                                 (864) 239-1000
                           (Issuer's telephone number)

<PAGE>



                         PART I - FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS



                        DAVIDSON INCOME REAL ESTATE, L.P.

                           CONSOLIDATED BALANCE SHEET
                                   (Unaudited)
                        (in thousands, except unit data)

                                 March 31, 2004

<TABLE>
<CAPTION>

Assets
<S>                                                                          <C>
   Cash and cash equivalents                                                 $ 187
   Receivables and deposits                                                     368
   Restricted escrows                                                            15
   Other assets                                                                 351
   Investment properties:
       Land                                                  $ 3,523
       Buildings and related personal property                 19,625
                                                               23,148
       Less accumulated depreciation                          (12,649)       10,499
                                                                           $ 11,420
Liabilities and Partners' Deficit
Liabilities
   Accounts payable                                                          $ 139
   Tenant security deposit liabilities                                           74
   Accrued property taxes                                                       155
   Other liabilities                                                             75
   Due to affiliate                                                           1,299
   Deficit in joint venture                                                     847
   Mortgage notes payable                                                    10,949

Partners' Deficit
   General partners                                           $ (835)
   Limited partners (26,776 units issued and
      outstanding)                                             (1,283)       (2,118)
                                                                           $ 11,420


         See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>

                        DAVIDSON INCOME REAL ESTATE, L.P.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                      (in thousands, except per unit data)
<TABLE>
<CAPTION>

                                                               Three Months Ended
                                                                    March 31,
                                                               2004          2003
Revenues:
<S>                                                           <C>           <C>
   Rental income                                              $  720        $  848
   Other income                                                   58            62
   Casualty gain                                                 388            --
      Total revenues                                           1,166           910

Expenses:
   Operating                                                     363           358
   General and administrative                                     50            42
   Depreciation                                                  246           220
   Interest                                                      148           216
   Property taxes                                                 98            94
      Total expenses                                             905           930

Income (loss) before equity in (loss) income of joint
   venture                                                       261           (20)
Equity in (loss) income of joint venture                          (9)            2
Income (loss) from continuing operations                         252           (18)
Loss from discontinued operations                                 --          (106)
Net income (loss)                                             $  252        $ (124)

Net income (loss) allocated to general partners (3%)          $    8        $   (4)
Net income (loss) allocated to limited partners (97%)            244          (120)

                                                              $  252        $ (124)
Per limited partnership unit:
  Income (loss) from continuing operations                    $ 9.11        $(0.65)
  Loss from discontinued operations                               --         (3.84)
Net income (loss)                                             $ 9.11        $(4.49)


         See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>

                        DAVIDSON INCOME REAL ESTATE, L.P.

            CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
                                   (Unaudited)
                        (in thousands, except unit data)
<TABLE>
<CAPTION>

                                     Limited
                                   Partnership   General      Limited
                                      Units      Partners    Partners       Total

<S>                                   <C>          <C>        <C>         <C>
Original capital contributions        26,776       $ 1        $26,776     $ 26,777

Partners' deficit at
   December 31, 2003                  26,776      $ (843)    $(1,527)     $ (2,370)

Net income for the three months
   ended March 31, 2004                   --           8         244           252

Partners' deficit
   at March 31, 2004                  26,776      $ (835)    $(1,283)     $ (2,118)


         See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>
                        DAVIDSON INCOME REAL ESTATE, L.P.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                 Three Months Ended
                                                                       March 31,
                                                                  2004          2003
Cash flows from operating activities:
<S>                                                              <C>         <C>
  Net income (loss)                                              $ 252       $ (124)
  Adjustments to reconcile net income (loss) to net cash
   (used in) provided by operating activities:
     Casualty gain                                                 (388)          --
     Depreciation                                                   246          280
     Amortization of loan costs and discounts                         9           18
     Equity in loss (income) of joint venture                         9           (2)
     Change in accounts:
      Receivables and deposits                                       19         (130)
      Other assets                                                  (97)          (3)
      Accounts payable                                              (88)          66
      Tenant security deposit liabilities                             3            7
      Accrued property taxes                                       (148)        (121)
      Other liabilities                                             (31)          49
      Due to affiliates                                             (26)          --
       Net cash (used in) provided by operating activities         (240)          40

Cash flows from investing activities:
  Property improvements and replacements                           (364)        (121)
  Net withdrawals from (deposits to) restricted escrows              15           (2)
  Insurance proceeds received                                       327           --
       Net cash used in investing activities                        (22)        (123)

Cash flows from financing activities:
  Payment on advances from affiliate                                (51)          --
  Payments on mortgage notes payable                                (85)         (48)
       Net cash used in financing activities                       (136)         (48)

Net decrease in cash and cash equivalents                          (398)        (131)
Cash and cash equivalents at beginning of period                    585          576

Cash and cash equivalents at end of period                       $ 187        $ 445

Supplemental disclosure of cash flow information:
  Cash paid for interest                                         $ 128        $ 242
  Supplemental disclosure of non-cash flow information:
  Property improvements and replacements in accounts
    payable                                                      $ 113        $ --

At December  31,  2003,  accounts  payable  included  approximately  $405,000 of
property improvements and replacements.

         See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>
                        DAVIDSON INCOME REAL ESTATE, L.P.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note A - Basis of Presentation

The accompanying  unaudited consolidated financial statements of Davidson Income
Real Estate,  L.P. (the  "Partnership"  or  "Registrant")  have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information  and  with the  instructions  to Form  10-QSB  and  Item  310(b)  of
Regulation  S-B.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.  In the opinion of Davidson Diversified  Properties,  Inc.
(the  "Managing  General  Partner"),   all  adjustments  (consisting  of  normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included. Operating results for the three month period ended March 31, 2004, are
not  necessarily  indicative  of the results that may be expected for the fiscal
year  ending  December  31,  2004.  For  further   information,   refer  to  the
consolidated   financial  statements  and  footnotes  thereto  included  in  the
Partnership's  Annual  Report on Form 10-KSB for the fiscal year ended  December
31, 2003. The Managing  General Partner is a subsidiary of Apartment  Investment
and  Management  Company  ("AIMCO"),  a publicly  traded real estate  investment
trust.

Note B - Transactions with Affiliated Parties

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

Affiliates of the Managing  General Partner were entitled to receive 5% of gross
receipts from all of the Partnership's  properties as compensation for providing
property   management   services.   The  Partnership  paid  to  such  affiliates
approximately  $38,000 and $49,000 for the three months ended March 31, 2004 and
2003,  respectively,  which is  included  in  operating  expenses  and loss from
discontinued operations.

An  affiliate  of  the  Managing  General  Partner  received  reimbursements  of
accountable  administrative  expenses  amounting  to  approximately  $74,000 and
$27,000 for the three months ended March 31, 2004 and 2003, respectively,  which
is included in general and  administrative  expenses and investment  properties.
Included in these amounts are fees related to construction  management  services
provided  by an  affiliate  of the  Managing  General  Partner of  approximately
$44,000  and  $1,000  for the  three  months  ended  March  31,  2004 and  2003,
respectively. The construction management service fees are based on a percentage
of current additions to investment properties.

During the three months ended March 31, 2004 and 2003, the  Partnership  did not
receive any advances from an affiliate of the Managing General  Partner.  During
the three months ended March 31, 2004, the Partnership  repaid previous advances
of  approximately  $68,000,  including  $17,000 of interest.  There were no such
repayments  during the three months ended March 31, 2003. At March 31, 2004, the
amount of outstanding advances was approximately  $1,299,000 and is shown as Due
to  affiliates  on the  accompanying  consolidated  balance  sheet.  Interest on
advances is charged at prime plus 2%, or 6.00% at March 31, 2004,  in accordance
with the Partnership Agreement. During the three months ended March 31, 2004 and
2003, the Partnership  recognized interest expense of approximately  $17,000 and
$1,000, respectively, relative to obligations due to affiliates.

The  Partnership  insures its properties up to certain  limits through  coverage
provided by AIMCO which is  generally  self-insured  for a portion of losses and
liabilities  related to workers  compensation,  property  casualty  and  vehicle
liability. The Partnership insures its properties above the AIMCO limits through
insurance  policies  obtained  by  AIMCO  from  insurers  unaffiliated  with the
Managing General Partner.  During 2004, the Partnership anticipates its cost for
insurance  coverage  and  fees  associated  with  policy  claims  administration
provided  by  AIMCO  and its  affiliates  will  be  approximately  $34,000.  The
Partnership was charged approximately $66,000 for 2003.

Note C - Investment in Joint Venture

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

There were no  distributions  received from the joint  venture  during the three
months ended March 31, 2004 and 2003. For the three months ended March 31, 2004,
the Partnership  recognized  approximately $9,000 of equity in loss of the joint
venture.  For the three months ended March 31, 2003, the Partnership  recognized
approximately  $2,000 of equity  in  income of the joint  venture.  At March 31,
2004, the  Partnership  had received  distributions  and equity in losses of the
joint  venture  in  excess  of  its  general  partnership  interest  and  has an
investment deficiency of approximately $847,000.

The following table represents the net (loss) income of the Sterling Crest Joint
Venture for the three months ended March 31, 2004 and 2003 (in thousands):

                                                    Three Months Ended March 31,
                                                      2004                2003

     Total revenues                                 $   565            $   606
     Total expenses                                    (615)              (594)
     Net (loss) income                              $   (50)           $    12

Note D - Contingencies

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

On January 8, 2003,  the parties filed a  Stipulation  of Settlement in proposed
settlement of the Nuanes action and the Heller action.

In general  terms,  the  proposed  settlement  provides  for  certification  for
settlement  purposes of a settlement class consisting of all limited partners in
this  Partnership and others (the  "Partnerships")  as of December 20, 2002, the
dismissal  with  prejudice  and  release  of claims  in the  Nuanes  and  Heller
litigation,  payment by AIMCO of $9.9  million  (which shall be  distributed  to
settlement  class  members  after  deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent  appraisals of the  Partnerships'  properties  by a Court  appointed
appraiser.  An affiliate of the Managing General Partner has also agreed to make
at least one round of tender offers to purchase all of the partnership interests
in the Partnerships within one year of final approval,  if it is granted, and to
provide  partners with the independent  appraisals at the time of these tenders.
The proposed  settlement also provided for the limitation of the allowable costs
which  the  Managing   General   Partner  or  its  affiliates  will  charge  the
Partnerships  in connection with this litigation and imposes limits on the class
counsel  fees and  costs in this  litigation.  On April  11,  2003,  notice  was
distributed  to  limited   partners   providing  the  details  of  the  proposed
settlement.

On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.  On August 12, 2003, an objector
("Objector")  filed an  appeal  seeking  to  vacate  and/or  reverse  the  order
approving the settlement and entering  judgment  thereto.  On November 24, 2003,
the Objector filed an  application  requesting the Court order AIMCO to withdraw
settlement  tender offers it had  commenced,  refrain from making further offers
pending the appeal and auction any units tendered to third  parties,  contending
that the offers did not conform  with the terms of the  Settlement.  Counsel for
the Objector (on behalf of another  investor)  had  alternatively  requested the
Court take certain  action  purportedly  to enforce the terms of the  settlement
agreement.  On December 18, 2003,  the Court heard oral  argument on the motions
and denied them both in their entirety.  On January 28, 2004, Objector filed his
opening brief in his pending  appeal.  On April 23, 2004,  the Managing  General
Partner and its  affiliates  filed a response brief in support of the settlement
and the judgment  thereto.  Plaintiffs have also filed a brief in support of the
settlement.  Objector is  scheduled  to file a reply brief no later than May 13,
2004.

On August 8, 2003 AIMCO  Properties  L.P., an affiliate of the Managing  General
Partner,  was served  with a  Complaint  in the United  States  District  Court,
District of Columbia alleging that AIMCO Properties L.P.  willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance  workers  overtime
for all hours  worked in excess of forty per week.  On March 5, 2004  Plaintiffs
filed an amended complaint also naming NHP Management Company,  which is also an
affiliate  of the  Managing  General  Partner.  The  Complaint  is  styled  as a
Collective  Action  under  the FLSA and seeks to  certify  state  subclasses  in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate  maintenance workers for
time  that they were  required  to be  "on-call".  Additionally,  the  Complaint
alleges AIMCO  Properties  L.P.  failed to comply with the FLSA in  compensating
maintenance  workers  for time that they  worked in  responding  to a call while
"on-call".  The Defendants have filed an answer to the Amended Complaint denying
the substantive allegations. Discovery is currently underway.

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

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

Pursuant to a formal order of investigation received by AIMCO on March 29, 2004,
the  Central  Regional  Office of the  United  States  Securities  and  Exchange
Commission is conducting an  investigation  relating to certain  matters.  AIMCO
believes the areas of investigation  include AIMCO's  miscalculated  monthly net
rental  income  figures in third  quarter 2003,  forecasted  guidance,  accounts
payable,  rent concessions,  vendor rebates,  and capitalization of expenses and
payroll.  AIMCO is cooperating  fully.  AIMCO does not believe that the ultimate
outcome  will  have a  material  adverse  effect on its  consolidated  financial
condition or results of  operations  taken as a whole.  Similarly,  the Managing
General Partner does not believe that the ultimate  outcome will have a material
adverse effect on the Partnership's  consolidated financial condition or results
of operations taken as a whole.

Note E - Casualty Event

In December 2002, Bexley House Apartments  experienced a fire, causing damage to
32 units.  Reconstruction  of the units was  completed  during 2003.  During the
three months ended March 31, 2004, a casualty gain of approximately $388,000 was
recorded at Bexley House Apartments.  The gain was the result of the recognition
of insurance recoveries of approximately  $391,000 partially offset by the write
off of  approximately  $3,000 of  undepreciated  fixed assets.  The  Partnership
recognized  revenue from lost rents of  approximately  $96,000  during the three
months ended March 31, 2003.

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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

The Partnership's  investment  properties consist of three apartment  complexes.
The following  table sets forth the average  occupancy of the properties for the
three months ended March 31, 2004 and 2003:

                                                   Average Occupancy
      Property                                      2004       2003

      Lakeside Apartments                           94%        88%
         Charlotte, North Carolina (1)
      Bexley House Apartments                       64%        49%
         Columbus, Ohio (2)
      Covington Pointe Apartments                   85%        95%
         Dallas, Texas (3)

(1)      The Managing  General  Partner  attributes the increase in occupancy at
         Lakeside Apartments to increased marketing efforts by management.

(2)      The Managing  General  Partner  attributes the increase in occupancy at
         Bexley House  Apartments to the completion of units that were destroyed
         by a fire in December 2002.

(3)      The Managing  General  Partner  attributes the decrease in occupancy at
         Covington Pointe  Apartments to the decline in the market conditions in
         the  Dallas  area and an  increased  effort to  attract  a more  stable
         customer base.

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

Results of Operations

The  Partnership  realized  net income of  approximately  $252,000 for the three
months ended March 31, 2004 compared to a net loss of approximately $124,000 for
the three  months  ended March 31,  2003.  The decrease in net loss is due to an
increase  in total  revenues  and  decreases  in total  expenses  and loss  from
discontinued operations.

On April 15, 2003, the Partnership sold North Springs Apartments to an unrelated
third party. The property's operations, a loss of approximately $106,000 for the
three  months  ended March 31,  2003,  are  included  in loss from  discontinued
operations on the accompanying consolidated statements of operations and include
revenues of approximately $229,000. The Partnership did not recognize any income
or loss from  discontinued  operations  during the three  months ended March 31,
2004.

The Partnership's  income from continuing  operations for the three months ended
March 31, 2004 was  approximately  $252,000  compared to a loss from  continuing
operations of  approximately  $18,000 for the three months ended March 31, 2003.
The decrease in loss from  continuing  operations is due to an increase in total
revenues and a decrease in total expenses.  Total revenues  increased due to the
recognition in 2004 of a casualty gain partially  offset by a decrease in rental
income.  Rental  income  decreased  due to  decreases  in occupancy at Covington
Pointe Apartments,  average rental rates at all of the investment properties and
lost  rents at  Bexley  House  Apartments  partially  offset by an  increase  in
occupancy at Bexley House and Lakeside Apartments.

In December 2002, Bexley House Apartments  experienced a fire, causing damage to
32 units.  Reconstruction  of the units was  completed  during 2003.  During the
three months ended March 31, 2004, a casualty gain of approximately $388,000 was
recorded at Bexley House Apartments.  The gain was the result of the recognition
of insurance recoveries of approximately  $391,000 partially offset by the write
off of  approximately  $3,000 of  undepreciated  fixed assets.  The  Partnership
recognized  revenue from lost rents of  approximately  $96,000  during the three
months ended March 31, 2003.

The  decrease  in  total  expenses  is due to a  decrease  in  interest  expense
partially  offset by an  increase  in  depreciation  expense.  Interest  expense
decreased due to a decrease in the interest  rates on the mortgages at Covington
Pointe and Lakeside  Apartments as a result of the  refinancing of the mortgages
in June 2003 and November 2003, respectively. Depreciation expense increased due
to fixed assets  placed into service over the past twelve  months,  primarily at
Bexley House Apartments.

Included in general and administrative  expense for the three months ended March
31, 2004 and 2003 are management  reimbursements to the Managing General Partner
as allowed  under the  Partnership  Agreement.  Also  included  in  general  and
administrative  expenses  are costs  associated  with the  quarterly  and annual
communications  with  investors  and  regulatory  agencies  and the annual audit
required by the Partnership Agreement.

The  Partnership  owns a 17.5%  interest in Sterling  Crest Joint  Venture  (the
"Joint Venture"). The Partnership recognized equity in loss of the joint venture
of  approximately  $9,000 for the three months ended March 31, 2004  compared to
equity in income of the joint  venture  of  approximately  $2,000  for the three
months ended March 31, 2003.

Liquidity and Capital Resources

At  March  31,  2004,  the  Partnership   had  cash  and  cash   equivalents  of
approximately  $187,000  compared to  approximately  $445,000 at March 31, 2003.
Cash and cash equivalents  decreased  approximately  $398,000 since December 31,
2003  due to  approximately  $240,000  of  cash  used in  operating  activities,
approximately  $136,000 of cash used in financing  activities and  approximately
$22,000 of cash used in investing activities.  Cash used in financing activities
consisted  of  payments  of  principal  made on the  mortgages  encumbering  the
Partnership's  investment properties and a payment on advances from an affiliate
of the Managing General Partner.  Cash used in investing activities consisted of
property  improvements and replacements  partially offset by insurance  proceeds
received  from the  casualty  at  Bexley  House  Apartments  and the  refund  of
restricted  escrows  maintained by the former mortgage  lender.  The Partnership
invests its working capital reserves in interest bearing accounts.

The sufficiency of existing  liquid assets to meet future  liquidity and capital
expenditure   requirements   is  directly   related  to  the  level  of  capital
expenditures  required at the investment  properties to adequately  maintain the
physical  assets and other operating needs of the Partnership and to comply with
Federal,  state,  and local  legal and  regulatory  requirements.  The  Managing
General  Partner  monitors  developments  in the  area of legal  and  regulatory
compliance and is studying new federal laws, including the Sarbanes-Oxley Act of
2002. The Sarbanes-Oxley Act of 2002 mandates or suggests additional  compliance
measures with regard to governance,  disclosure, audit and other areas. In light
of these changes,  the  Partnership  expects that it will incur higher  expenses
related  to  compliance,  including  increased  legal  and audit  fees.  Capital
improvements planned for the Partnership's properties are detailed below.

Lakeside Apartments

During  the  three  months  ended  March 31,  2004,  the  Partnership  completed
approximately $19,000 of capital improvements at Lakeside Apartments, consisting
primarily of plumbing  upgrades and appliance and floor  covering  replacements.
These  improvements  were  funded  from  operating  cash flow.  The  Partnership
evaluates  the capital  improvement  needs of the  property  during the year and
currently  expects to complete an  additional  $100,000 in capital  improvements
during the remainder of 2004.  Additional capital improvements may be considered
and  will  depend  on the  physical  condition  of the  property  as well as the
anticipated cash flow generated by the property.

Bexley House Apartments

During  the  three  months  ended  March 31,  2004,  the  Partnership  completed
approximately  $36,000  of  capital  improvements  at Bexley  House  Apartments,
consisting   primarily  of  HVAC  and  building   improvements   and   appliance
replacements.  These  improvements  were  funded  from  insurance  proceeds  and
operating cash flow. The Partnership  evaluates the capital improvement needs of
the property  during the year and  currently  expects to complete an  additional
$23,000 in capital improvements during the remainder of 2004. Additional capital
improvements may be considered and will depend on the physical  condition of the
property as well as the anticipated cash flow generated by the property.

Covington Pointe Apartments

During  the  three  months  ended  March 31,  2004,  the  Partnership  completed
approximately  $17,000 of capital  improvements at Covington Pointe  Apartments,
consisting  primarily of roof  replacements  and  appliance  and floor  covering
replacements.  These  improvements  were funded from  operating  cash flow.  The
Partnership  evaluates the capital  improvement needs of the property during the
year and  currently  expects  to  complete  an  additional  $82,000  in  capital
improvements during the remainder of 2004.  Additional capital  improvements may
be considered and will depend on the physical  condition of the property as well
as the anticipated cash flow generated by the property.

Additional capital  expenditures will be incurred only if cash is available from
operations  or from  Partnership  reserves.  To the  extent  that such  budgeted
capital improvements are completed,  the Partnership's  distributable cash flow,
if any, may be adversely affected at least in the short term.

The  Partnership's  assets are thought to be sufficient for any near-term  needs
(exclusive  of  capital   improvements)   of  the   Partnership.   The  mortgage
indebtedness    encumbering   the   Partnership's   investment   properties   of
approximately  $10,949,000  is  amortized  over  varying  periods,  with balloon
payments  of  approximately  $4,416,000  due in July 2010 for  Covington  Pointe
Apartments  and   approximately   $2,606,000  in  September  2007  for  Lakeside
Apartments.  The Managing  General Partner has the option to extend the maturity
of the mortgage  encumbering  Lakeside  Apartments for an additional five years.
The  Managing  General  Partner  will  attempt  to  refinance  and/or  sell  the
properties prior to such maturity dates. If the properties  cannot be refinanced
or sold for a sufficient amount, the Partnership may risk losing such properties
through foreclosure.

The Partnership did not distribute any funds during the three months ended March
31, 2004 and 2003. The Partnership's cash available for distribution is reviewed
on a monthly basis.  Future cash  distributions will depend on the levels of net
cash generated  from  operations,  the  availability  of cash reserves,  and the
timing of debt maturities,  refinancings  and/or property sales. There can be no
assurance,  however,  that the Partnership  will generate  sufficient funds from
operations  after required capital  improvements to permit any  distributions to
its partners during the remainder of 2004 or subsequent periods.

Other

In addition to its indirect  ownership of the general  partner  interests in the
Partnership,  AIMCO and its affiliates owned 12,287.50 limited partnership units
(the "Units") in the Partnership representing 45.89% of the outstanding Units at
March 31, 2004. A number of these Units were acquired  pursuant to tender offers
made by AIMCO or its  affiliates.  It is possible  that AIMCO or its  affiliates
will acquire  additional Units in exchange for cash or a combination of cash and
units in AIMCO  Properties,  L.P., the operating  partnership  of AIMCO,  either
through  private  purchases  or  tender  offers.  Pursuant  to  the  Partnership
Agreement,  unitholders  holding a majority  of the Units are  entitled  to take
action with  respect to a variety of matters that  include,  but are not limited
to,  voting on certain  amendments  to the  Partnership  Agreement and voting to
remove the Managing General  Partner.  As a result of its ownership of 45.89% of
the outstanding  Units,  AIMCO and its affiliates are in a position to influence
all voting  decisions  with  respect to the  Partnership.  Although the Managing
General  Partner  owes  fiduciary   duties  to  the  limited   partners  of  the
Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as
its sole stockholder.  As a result,  the duties of the Managing General Partner,
as managing  general  partner,  to the Partnership and its limited  partners may
come into conflict with the duties of the Managing  General Partner to AIMCO, as
it sole stockholder.

Critical Accounting Policies and Estimates

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

Impairment of Long-Lived Assets

Investment  properties  are  recorded at cost,  less  accumulated  depreciation,
unless  considered  impaired.  If  events  or  circumstances  indicate  that the
carrying  amount of a property may be  impaired,  the  Partnership  will make an
assessment of its  recoverability  by estimating  the  undiscounted  future cash
flows,  excluding  interest  charges,  of the property.  If the carrying  amount
exceeds the aggregate  future cash flows,  the  Partnership  would  recognize an
impairment  loss to the extent the carrying amount exceeds the fair value of the
property.

Real  property  investments  are  subject  to varying  degrees of risk.  Several
factors  may  adversely  affect  the  economic  performance  and  value  of  the
Partnership's investment properties.  These factors include, but are not limited
to,  changes  in the  national,  regional  and  local  economic  climate;  local
conditions,  such as an oversupply of multifamily  properties;  competition from
other available  multifamily property owners and changes in market rental rates.
Any adverse changes in these factors could cause impairment of the Partnership's
assets.

Revenue Recognition

The Partnership generally leases apartment units for twelve-month terms or less.
Rental income  attributable to leases is recognized monthly as it is earned. The
Partnership  evaluates all accounts receivable from residents and establishes an
allowance, after the application of security deposits, for accounts greater than
30 days past due on current tenants and all receivables due from former tenants.
The Partnership will offer rental concessions during particularly slow months or
in response to heavy  competition from other similar  complexes in the area. Any
concessions  given at the inception of the lease are amortized  over the life of
the lease.

ITEM 3.     CONTROLS AND PROCEDURES

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

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

                           PART II - OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

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

On January 8, 2003,  the parties filed a  Stipulation  of Settlement in proposed
settlement of the Nuanes action and the Heller action.

In general  terms,  the  proposed  settlement  provides  for  certification  for
settlement  purposes of a settlement class consisting of all limited partners in
this  Partnership and others (the  "Partnerships")  as of December 20, 2002, the
dismissal  with  prejudice  and  release  of claims  in the  Nuanes  and  Heller
litigation,  payment by AIMCO of $9.9  million  (which shall be  distributed  to
settlement  class  members  after  deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent  appraisals of the  Partnerships'  properties  by a Court  appointed
appraiser.  An affiliate of the Managing General Partner has also agreed to make
at least one round of tender offers to purchase all of the partnership interests
in the Partnerships within one year of final approval,  if it is granted, and to
provide  partners with the independent  appraisals at the time of these tenders.
The proposed  settlement also provided for the limitation of the allowable costs
which  the  Managing   General   Partner  or  its  affiliates  will  charge  the
Partnerships  in connection with this litigation and imposes limits on the class
counsel  fees and  costs in this  litigation.  On April  11,  2003,  notice  was
distributed  to  limited   partners   providing  the  details  of  the  proposed
settlement.

On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.  On August 12, 2003, an objector
("Objector")  filed an  appeal  seeking  to  vacate  and/or  reverse  the  order
approving the settlement and entering  judgment  thereto.  On November 24, 2003,
the Objector filed an  application  requesting the Court order AIMCO to withdraw
settlement  tender offers it had  commenced,  refrain from making further offers
pending the appeal and auction any units tendered to third  parties,  contending
that the offers did not conform  with the terms of the  Settlement.  Counsel for
the Objector (on behalf of another  investor)  had  alternatively  requested the
Court take certain  action  purportedly  to enforce the terms of the  settlement
agreement.  On December 18, 2003,  the Court heard oral  argument on the motions
and denied them both in their entirety.  On January 28, 2004, Objector filed his
opening brief in his pending  appeal.  On April 23, 2004,  the Managing  General
Partner and its  affiliates  filed a response brief in support of the settlement
and the judgment  thereto.  Plaintiffs have also filed a brief in support of the
settlement.  Objector is  scheduled  to file a reply brief no later than May 13,
2004.

On August 8, 2003 AIMCO  Properties  L.P., an affiliate of the Managing  General
Partner,  was served  with a  Complaint  in the United  States  District  Court,
District of Columbia alleging that AIMCO Properties L.P.  willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance  workers  overtime
for all hours  worked in excess of forty per week.  On March 5, 2004  Plaintiffs
filed an amended complaint also naming NHP Management Company,  which is also an
affiliate  of the  Managing  General  Partner.  The  Complaint  is  styled  as a
Collective  Action  under  the FLSA and seeks to  certify  state  subclasses  in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate  maintenance workers for
time  that they were  required  to be  "on-call".  Additionally,  the  Complaint
alleges AIMCO  Properties  L.P.  failed to comply with the FLSA in  compensating
maintenance  workers  for time that they  worked in  responding  to a call while
"on-call".  The Defendants have filed an answer to the Amended Complaint denying
the substantive allegations. Discovery is currently underway.

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

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

            a) Exhibits:

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

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

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

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

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

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

                  32.1  Certification  Pursuant to 18 U.S.C.  Section  1350,  as
                        Adopted  Pursuant to Section  906 of the  Sarbanes-Oxley
                        Act of 2002.

            b) Reports on Form 8-K:

                  None filed during the quarter ended March 31, 2004.


<PAGE>



                                   SIGNATURES



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



                                    DAVIDSON INCOME REAL ESTATE, L.P.


                                    By:   DAVIDSON DIVERSIFIED PROPERTIES, INC.
                                          Managing General Partner


                                    By:   /s/Martha L. Long
                                          Martha L. Long
                                          Senior Vice President


                                    By:   /s/Thomas M. Herzog
                                          Thomas M. Herzog
                                          Senior Vice President
                                          and Chief Accounting Officer


                                    Date: May 17, 2004


<PAGE>


Exhibit 31.1

                                  CERTIFICATION


I, Martha L. Long, certify that:


1.    I have reviewed this  quarterly  report on Form 10-QSB of Davidson  Income
      Real Estate, L.P.;

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

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

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

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

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

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

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

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

      (b)   Any fraud,  whether or not  material,  that  involves  management or
            other  employees  who have a  significant  role in the  registrant's
            internal control over financial reporting.


Date: May 17, 2004

                                    /s/Martha L. Long
                                    Martha L. Long
                                    Senior Vice President of Davidson
                                    Diversified Properties, Inc., equivalent
                                    of the chief executive officer of the
                                    Partnership


<PAGE>


Exhibit 31.2

                                  CERTIFICATION


I, Thomas M. Herzog, certify that:


1.    I have reviewed this  quarterly  report on Form 10-QSB of Davidson  Income
      Real Estate, L.P.;

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

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

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

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

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

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

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

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

      (b)   Any fraud,  whether or not  material,  that  involves  management or
            other  employees  who have a  significant  role in the  registrant's
            internal control over financial reporting.


Date: May 17, 2004

                                    /s/Thomas M. Herzog
                                    Thomas M. Herzog
                                    Senior Vice President and Chief
                                    Accounting Officer of Davidson
                                    Diversified Properties, Inc., equivalent
                                    of the chief financial officer of the
                                    Partnership


<PAGE>


Exhibit 32.1


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



In connection  with the Quarterly  Report on Form 10-QSB of Davidson Income Real
Estate, L.P. (the "Partnership"),  for the quarterly period ended March 31, 2004
as filed with the  Securities  and Exchange  Commission  on the date hereof (the
"Report"),  Martha L. Long, as the equivalent of the chief executive  officer of
the Partnership,  and Thomas M. Herzog, as the equivalent of the chief financial
officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section
1350,  as adopted  pursuant  to Section 906 of the  Sarbanes-Oxley  Act of 2002,
that, to the best of his knowledge:

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

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


                                           /s/Martha L. Long
                                    Name:  Martha L. Long
                                    Date:  May 17, 2004


                                           /s/Thomas M. Herzog
                                    Name:  Thomas M. Herzog
                                    Date:  May 17, 2004


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