--------------------------------------------------------------------------------

                          U. S. SECURITIES AND EXCHANGE
                        COMMISSION Washington, D.C. 20549


                               ------------------



                                   FORM 10-QSB


                               ------------------



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

                  For the quarterly period ended June 30, 2005


                               ------------------



                         Commission file number 0-23766


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
             Organized pursuant to the Laws of the State of Maryland


                               ------------------



        Internal Revenue Service - Employer Identification No. 52-1388957

                 11200 Rockville Pike, Rockville, Maryland 20852

                                 (301) 468-9200


                               ------------------





Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the  registrant  was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|





--------------------------------------------------------------------------------
<PAGE>



                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                              INDEX TO FORM 10-QSB

                       FOR THE QUARTER ENDED JUNE 30, 2005



                                                                          Page


Part I - FINANCIAL INFORMATION

Item 1.  Financial Statements

         Balance Sheets
           - June 30, 2005 and December 31, 2004...........................  1

         Statements of Operations and Accumulated Losses
           - for the three and six months ended June 30, 2005 and 2004 ....  2

         Statements of Cash Flows
           - for the six months ended June 30, 2005 and 2004...............  3

         Notes to  Financial Statements
           - June 30, 2005 and 2004........................................  4

Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations....................................... 10

Item 3.  Controls and Procedures........................................... 12


Part II - OTHER INFORMATION

Item 3.  Defaults Upon Senior Securities...................................  12

Item 5.  Other Information.................................................  13

Item 6.  Exhibits..........................................................  13

Signature..................................................................  14



<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements


                CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                                 BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                        June 30,      December 31,
                                                                                          2005            2004
                                                                                      -------------   ------------
                                                                                       (Unaudited)
<S>                                                                                   <C>             <C>
Investments in partnerships held for sale .........................................   $    633,564    $    617,151
Cash and cash equivalents .........................................................      4,521,678       4,665,352
Other assets ......................................................................            345             173
                                                                                      ------------    ------------

      Total assets ................................................................   $  5,155,587    $  5,282,676
                                                                                      ============    ============



                        LIABILITIES AND PARTNERS' CAPITAL


Due on investments in partnerships ................................................   $    404,600    $    404,600
Accrued interest payable ..........................................................      1,175,196       1,142,762
Accounts payable and accrued expenses .............................................         77,756          87,804
                                                                                      ------------    ------------

      Total liabilities ...........................................................      1,657,552       1,635,166
                                                                                      ------------    ------------

Commitments and contingencies

Partners' capital:

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

                                                                                        21,204,500      21,204,500

  Less:
    Accumulated distributions to partners .........................................    (10,411,873)    (10,411,873)
    Offering costs ................................................................     (2,570,535)     (2,570,535)
    Accumulated losses ............................................................     (4,724,057)     (4,574,582)
                                                                                      ------------    ------------

      Total partners' capital .....................................................      3,498,035       3,647,510
                                                                                      ------------    ------------

      Total liabilities and partners' capital .....................................   $  5,155,587    $  5,282,676
                                                                                      ============    ============
</TABLE>




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

                                       -1-

<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                            STATEMENTS OF OPERATIONS

                             AND ACCUMULATED LOSSES

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                    For the three months ended       For the six months ended
                                                             June 30,                        June 30,
                                                   -----------------------------  -----------------------------
                                                       2005            2004           2005               2004
                                                   ------------    -------------   ------------    ------------
<S>                                                <C>             <C>             <C>             <C>
Share of (loss) income from partnerships .......   $     (1,451)   $     20,146    $     16,413    $     41,560
                                                   ------------    ------------    ------------    ------------

Other revenue and expenses:

  Revenue:
    Interest ...................................         28,742          10,064          52,142          21,327
                                                   ------------    ------------    ------------    ------------

  Expenses:
    Interest ...................................         16,217          40,768          32,434          91,900
    General and administrative .................         49,048          50,988          98,550         102,189
    Management fee .............................         24,480          24,480          48,960          48,960
    Professional fees ..........................         22,000          22,384          44,000          96,012
                                                   ------------    ------------    ------------    ------------

                                                        111,745         138,620         223,944         339,061
                                                   ------------    ------------    ------------    ------------

      Total other revenue and expenses .........        (83,003)       (128,556)       (171,802)       (317,734)
                                                   ------------    ------------    ------------    ------------

Loss before gain on disposition of investment
  in partnership ...............................        (84,454)       (108,410)       (155,389)       (276,174)

Gain on disposition of investment in partnership          1,966       2,052,784           5,914       2,052,784
                                                   ------------    ------------    ------------    ------------

Net (loss) income ..............................        (82,488)      1,944,374        (149,475)      1,776,610

Accumulated losses, beginning of period ........     (4,641,569)    (12,671,545)     (4,574,582)    (12,503,781)
                                                   ------------    ------------    ------------    ------------

Accumulated losses, end of period ..............   $ (4,724,057)   $(10,727,171)   $ (4,724,057)   $(10,727,171)
                                                   ============    ============    ============    ============



Net (loss) income allocated to
  General Partners (1.51%) .....................   $     (1,246)   $     29,360    $     (2,257)   $     26,827
                                                   ============    ============    ============    ============

Net (loss) income allocated to
  Initial and Special Limited Partners (2.49%) .   $     (2,054)   $     48,415    $     (3,722)   $     44,238
                                                   ============    ============    ============    ============


Net (loss) income allocated to
  BAC Holders (96%) ............................   $    (79,188)   $  1,866,599    $   (143,496)   $  1,705,545
                                                   ============    ============    ============    ============


Net (loss) income per BAC,
  based on 21,158 BACs outstanding .............   $      (3.74)   $      88.22    $      (6.78)   $      80.61
                                                   ============    ============    ============    ============

</TABLE>

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

                                       -2-

<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                  For the six months ended
                                                                                           June 30,
                                                                                 --------------------------
                                                                                     2005          2004
                                                                                 -----------    -----------
<S>                                                                              <C>            <C>
Cash flows from operating activities:
  Net (loss) income ..........................................................   $  (149,475)   $ 1,776,610

  Adjustments to reconcile net (loss) income to net cash used in operating
    activities:
    Share of income from partnerships ........................................       (16,413)       (41,560)
    Gain on disposition of investment in partnership .........................        (5,914)    (2,052,784)

    Changes in assets and liabilities:
      Increase in accrued interest receivable on advances to partnerships ....          --          (10,100)
      Increase in other assets ...............................................          (172)           (35)
      Increase in accrued interest payable ...................................        32,434         91,900
      Decrease in accounts payable and accrued expenses ......................       (10,048)      (104,154)
                                                                                 -----------    -----------

        Net cash used in operating activities ................................      (149,588)      (340,123)
                                                                                 -----------    -----------

Cash flows from investing activities:
  Proceeds from disposition of investment in partnership,
    net of disposition fee of $507,112, paid to related party ................          --          460,153
  Loans to local managing general partner ....................................          --         (495,749)
  Collection of loans to local managing general partner ......................          --          495,749
  Receipt of distributions from partnerships .................................          --          133,588
  Additional sales proceeds ..................................................         5,914           --
                                                                                 -----------    -----------

        Net cash provided by investing activities ............................         5,914        593,741
                                                                                 -----------    -----------

Net (decrease) increase in cash and cash equivalents .........................      (143,674)       253,618

Cash and cash equivalents, beginning of period ...............................     4,665,352      3,470,418
                                                                                 -----------    -----------

Cash and cash equivalents, end of period .....................................   $ 4,521,678    $ 3,724,036
                                                                                 ===========    ===========



Supplemental disclosure of cash flow information: Non-cash financing activity:
   Purchase money note principal and accrued interest
    payable assumed by purchaser of
    related investment in partnership ........................................   $      --      $ 1,647,092
                                                                                 ===========    ===========

</TABLE>

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

                                       -3-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             June 30, 2005 and 2004

                                   (Unaudited)


1.   BASIS OF PRESENTATION

     In the opinion of C.R.I.,  Inc. (CRI), the Managing  General  Partner,  the
accompanying unaudited financial statements reflect all adjustments,  consisting
of normal recurring accruals, necessary for a fair presentation of the financial
position of Capital Realty Investors-85 Limited Partnership (the Partnership) as
of June 30, 2005, and the results of its operations for the three and six months
ended June 30, 2005 and 2004,  and its cash flows for the six months  ended June
30, 2005 and 2004.  The results of operations  for the interim period ended June
30, 2005, are not  necessarily  indicative of the results to be expected for the
full year.

     The  accompanying  unaudited  financial  statements  have been  prepared in
conformity with accounting principles generally accepted in the United States of
America (US GAAP) and with the instructions to Form 10-QSB.  Certain information
and accounting policies and footnote  disclosures normally included in financial
statements  prepared in conformity  with US GAAP have been  condensed or omitted
pursuant to such instructions.  These condensed  financial  statements should be
read in conjunction with the financial  statements and notes thereto included in
the Partnership's annual report on Form 10-KSB at December 31, 2004.

     In December  2003,  the Financial  Accounting  Standards  Board issued FASB
Interpretation  No. 46  (revised  December  2003) (FIN 46-R),  Consolidation  of
Variable  Interest  Entities.  FIN 46-R clarifies the  application of Accounting
Research Bulletin 51, Consolidated  Financial  Statements,  for certain entities
that do not  have  sufficient  equity  at risk for the  entity  to  finance  its
activities without additional  subordinated financial support from other parties
or in which equity  investors do not have the  characteristics  of a controlling
financial interest  ("variable interest  entities").  Variable interest entities
within  the  scope of FIN 46-R  will be  required  to be  consolidated  by their
primary  beneficiary.  The primary  beneficiary of a variable interest entity is
determined  to be the party that  absorbs a majority  of the  entity's  expected
losses,  receives a majority of its  expected  returns,  or both.  The  Managing
General  Partner has  evaluated the  partnerships  in which the  Partnership  is
invested and has determined that they are not variable interest entities subject
to consolidation by the Partnership under the provisions of FIN 46-R.


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

a.   Due on investments in partnerships and accrued interest payable
     ---------------------------------------------------------------

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

     The  Partnership's  remaining  obligation with respect to its investment in
Paradise Associates Limited Partnership (Paradise  Foothills),  in the form of a
nonrecourse  purchase  money note  having a principal  balance of $230,000  plus
accrued  interest of $1,099,796 as of June 30, 2005, is payable in full upon the
earliest of: (i) sale or refinancing of the Local Partnership's rental property;
(ii)  payment  in full of the  Local  Partnership's  permanent  loan;  or  (iii)
maturity.  The  Partnership  defaulted  on its purchase  money note  relating to
Paradise  Foothills when the note matured on January 30, 1996, and was not paid.
Effective March 31, 2003, the Managing General Partner  successfully  negotiated
an agreement to extend the maturity date of the purchase money note to March 31,
2008, and to reduce the interest rate. The Partnership is currently  negotiating
the sale of the property related to Paradise Foothills. The sale is scheduled to
close in the fourth  quarter of 2005.  There is no assurance  that a sale of the
property will occur.

                                       -4-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             June 30, 2005 and 2004

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     The  purchase  money note,  which is  nonrecourse  to the  Partnership,  is
secured  by the  Partnership's  interest  in  Paradise  Foothills.  There  is no
assurance that the underlying  property will have  sufficient  appreciation  and
equity to enable the Partnership to pay the purchase money note's  principal and
accrued  interest when due. If the 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 Paradise Foothills.  In the
event that the purchase money note remains unpaid upon maturity,  the noteholder
may have the  right to  foreclose  on the  Partnership's  interest  in  Paradise
Foothills.

     Interest  expense on the  Partnership's  purchase money notes for the three
and six month periods ended June 30, 2005 was $16,217 and $32,434, respectively,
and  $40,768  and  $91,900  for the three and six months  ended  June 30,  2004,
respectively.  The accrued interest payable on the remaining purchase money note
of  $1,099,796  and  $1,067,362  as of June 30,  2005  and  December  31,  2004,
respectively, is due on the maturity date of the purchase money note or earlier,
in some instances, if (and to the extent of a portion thereof) the related Local
Partnership  has  distributable  net cash flow, as defined in the relevant Local
Partnership agreement.

     The principal  amount due to a local general partner of Paradise  Foothills
of  $174,600,  plus accrued  interest of $75,400 at June 30, 2005,  will be paid
upon the occurrence of specified events, as outlined in the Local  Partnership's
partnership agreement.

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

     The  Partnership  defaulted  on its  purchase  money note  relating to Mesa
Residential  Partners  Limited  Partnership   (formerly  Mesa  Partners  Limited
Partnership)  (The Pointe) when the note matured on June 30, 2003,  as extended,
and was not paid. The default amount included  principal and accrued interest of
$643,000 and $877,602,  respectively. The maturity date of the note was extended
to September 30, 2004. On June 4, 2004, the Partnership's interest in The Pointe
was  sold to an  affiliate  of the  local  managing  general  partner.  Net cash
proceeds  received by the  Partnership in June 2004 totaled  $460,153.  The sale
resulted in net gain on disposition of investment in  partnerships of $2,052,784
for financial  statement  purposes and in total gain of  $7,017,905  for federal
income tax purposes in 2004.  In  accordance  with the terms of the  Partnership
Agreement,  in June 2004 the Managing General Partner was paid a disposition fee
of $507,112  related to the sale. The fee was netted against the related gain on
disposition of investment in partnerships.

b.   Advances to Local Partnerships
     ------------------------------

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

     The Pointe,  which owns apartments located in El Paso, Texas,  modified its
mortgage loan in 1987. In connection  with the mortgage loan  modification,  the
Partnership  advanced  a total of  $262,500  to the Local  Partnership  in 1987.
Repayment of these loans,  with simple interest at 9% per annum, was expected to
occur upon sale or refinancing of the property.  However, in July 2003, when the
first  mortgage  was  refinanced,  there were not enough  proceeds  to repay the
loans.  Therefore,  the  Partnership  contracted  to sell its  loans  receivable
together with its interest in the Local Partnership to an affiliate of the local
general partner.  On June 4, 2004, the Partnership's  interest in The Pointe was
sold. See Note 2.a. hereof for additional information concerning the sale.

                                       -5-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             June 30, 2005 and 2004

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

c.   Other Partnership matters
     -------------------------

                                 Willow Creek II
                                 ---------------

     The Partnership is currently  negotiating the sale of the property  related
to Willow Creek II Limited  Partnership (Willow Creek II). The sale is scheduled
to close in the fourth quarter of 2005. There is no assurance that a sale of the
property will occur.

     Due to the possible  sale of the  property  related to Willow Creek II, the
Partnership's  basis in the Local  Partnership,  along with the net  unamortized
amount of acquisition fees and property  purchase costs,  which totaled $633,564
and  $617,151 at June 30, 2005 and December  31,  2004,  respectively,  has been
reclassified  to investments in partnerships  held for sale in the  accompanying
balance sheets.

d.   Property matters
     ----------------

                                 Semper Village
                                 --------------

     On December 19, 2003, the Local Partnership entered into a contract to sell
the property owned by Sheridan West Limited  Partnership  (Semper  Village).  On
July 1,  2004,  the  property  related  to Semper  Village  was  sold.  Net cash
proceeds,  including  a  $14,923  Local  Partnership  reserve  received  by  the
Partnership, totaled $6,334,534. The sale resulted in net gain on disposition of
investment in partnerships of $6,291,867 for financial statement purposes and in
total gain of $10,793,171 for federal income tax purposes in 2004. In accordance
with the terms of the Partnership  Agreement,  in July 2004 the Managing General
Partner was paid a disposition fee of $706,250  related to the sale. The fee was
netted against the related gain on  disposition  of investment in  partnerships.
During  the  first  and  second  quarters  of  2005,  the  Partnership  received
additional  proceeds  of  $5,914  related  to the  sale,  resulting  in  gain on
disposition  of investment  in  partnership  of $5,914 for  financial  statement
purposes in 2005.

e.   Summarized financial information
     --------------------------------

     Combined  statements of operations for the two and three Local Partnerships
in  which  the   Partnership  was  invested  as  of  June  30,  2005  and  2004,
respectively,  follow.  The combined  statements of operations for the three and
six month  periods  ended June 30,  2004,  included  information  for The Pointe
through  the  date of sale  of the  Partnership's  interest  in June  2004.  The
combined  statements  have  been  compiled  from  information  supplied  by  the
management agents of the properties and are unaudited.  The information for each
of the periods is presented  separately for those Local  Partnerships which have
investment basis (equity method),  and for those Local  Partnerships  which have
cumulative  losses in excess of the amount of the  Partnership's  investment  in
those Local Partnerships (equity method suspended).


                                       -6-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             June 30, 2005 and 2004

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued


                                         COMBINED STATEMENTS OF OPERATIONS
                                                    (Unaudited)

<TABLE>
<CAPTION>

                                                                    For the three months ended
                                                                             June 30,
                                                  -------------------------------------------------------------
                                                      2005            2004             2005           2004
                                                  -------------------------------------------------------------
                                                    Equity                            Equity
                                                    Method         Suspended          Method        Suspended
                                                  ----------       ----------       ----------      ----------
         <S>                                      <C>              <C>              <C>             <C>
         Number of Local Partnerships                 1                1                1               2
                                                      =                =                =               =

         Revenue:
           Rental                                 $  258,148       $  269,393       $  267,983      $1,015,976
           Other                                       4,552           23,969            5,689          84,947
                                                  ----------       ----------       ----------      ----------

             Total revenue                           262,700          293,362          273,672       1,100,923
                                                  ----------       ----------       ----------      ----------

         Expenses:
           Operating                                 166,590          156,458          148,992         632.567
           Interest                                   43,776           97,839           45,396         318,663
           Depreciation and amortization              53,800           68,285           54,696         244,555
                                                  ----------       ----------       ----------      ----------

             Total expenses                          264,166          322,582          249,084       1,195,785
                                                  ----------       ----------       ----------      ----------

         Net (loss) income                        $   (1,466)      $  (29,220)      $   24,588      $  (94,862)
                                                  ==========       ==========       ==========      ==========

         Cash Distributions                       $       --       $       --       $  133,588      $       --
                                                  ==========       ==========       ==========      ==========

         Cash distributions recorded as
           reduction of investment in
           partnerships                           $       --       $       --       $  133,588      $       --
                                                  ==========       ==========       ==========      ==========


         Partnership's share of Local
           Partnership net (loss) income          $   (1,451)      $       --       $   24,340      $       --

         Interest receivable - The Pointe                 --               --               --          (4,194)
                                                  ------------------------------------------------------------

         Share of (loss) income
             from partnerships                              $(1,451)                         $20,146
                                                            =======                          =======
</TABLE>


                                       -7-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             June 30, 2005 and 2004

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

<TABLE>
<CAPTION>
                                                                    For the six months ended
                                                                             June 30,
                                                  -----------------------------------------------------------
                                                     2005            2004              2005           2004
                                                  -----------------------------------------------------------
                                                    Equity                            Equity
                                                    Method         Suspended          Method        Suspended
                                                  ----------       ----------       ----------      ----------
         <S>                                      <C>              <C>              <C>             <C>
         Number of Local Partnerships                 1                1                1               2
                                                      =                =                =               =

         Revenue:
           Rental                                 $  535,279       $  538,785       $  558,174      $2,179,780
           Other                                      16,525           47,938           17,784         175,629
                                                  ----------       ----------       ----------      ----------

             Total revenue                           551,804          586,723          575,958       2,355,409
                                                  ----------       ----------       ----------      ----------

         Expenses:
           Operating                                 340,070          312,914          323,587       1,341,058
           Interest                                   87,552          195,678           90,792         675,502
           Depreciation and amortization             107,601          136,571          109,392         525,463
                                                  ----------       ----------       ----------      ----------

             Total expenses                          535,223          645,163          523,771       2,542,023
                                                  ----------       ----------       ----------      ----------

         Net income (loss)                        $   16,581       $  (58,440)      $   52,187      $ (186,614)
                                                  ==========       ==========       ==========      ==========

         Cash Distributions                       $       --       $       --       $  133,588      $       --
                                                  ==========       ==========       ==========      ==========

         Cash distributions recorded as
           reduction of investment in
           partnerships                           $       --       $       --       $  133,588      $       --
                                                  ==========       ==========       ==========      ==========


         Partnership's share of Local
           Partnership net income                 $   16,413       $       --       $   51,660      $       --


         Interest receivable - The Pointe                 --               --               --         (10,100)
                                                  ------------------------------------------------------------

         Share of income from partnerships                  $16,413                        $41,560
                                                            =======                        =======
</TABLE>


     Cash  distributions  received from Local Partnerships which have investment
basis (equity method) are recorded as a reduction of investments in partnerships
and as cash  receipts  on the  respective  balance  sheets.  Cash  distributions
received from Local  Partnerships  which have cumulative losses in excess of the
amount of the  Partnership's  investments  in those Local  Partnerships  (equity
method  suspended)  are  recorded  as share of income from  partnerships  on the
respective  statements  of  operations  and as cash  receipts on the  respective
balance  sheets.  As of June  30,  2005 and  2004,  the  Partnership's  share of
cumulative  losses  to date for one and two  Local  Partnerships,  respectively,
exceeded the amount of the  Partnership's  investments  in and advances to those
Local   Partnerships  by  $5,977,331  and  $6,052,443,   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 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 connection with managing the  Partnership.  The Partnership  paid $28,887 and
$53,691 for the three and six month periods  ended June 30, 2005,  respectively,
and $40,763 and $81,200 for the three and six month periods ended June 30, 2004,
respectively,  to the  Managing  General  Partner  as  direct  reimbursement  of
expenses  incurred on behalf of the  Partnership.  Such expenses are included in
the  accompanying   statements  of  operations  as  general  and  administrative
expenses.

                                       -8-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             June 30, 2005 and 2004

                                   (Unaudited)


3.   RELATED PARTY TRANSACTIONS - Continued

     In accordance with the terms of the Partnership Agreement,  the Partnership
is obligated to pay the Managing General Partner an annual incentive  management
fee  (Management  Fee) after all other expenses of the Partnership are paid. The
Partnership  paid the Managing  General  Partner a Management Fee of $24,480 for
each of the three month periods  ended June 30, 2005 and 2004,  $48,960 for each
of the six month periods ended June 30, 2005 and 2004.

     In  accordance  with the  terms of a  Definitive  Proxy  Statement  for the
Liquidation  and Dissolution of the Partnership  (Definitive  Proxy  Statement),
which has been approved by a majority of the units of Limited Partner  Interest,
the Managing  General Partner may receive an incentive  disposition fee of up to
five percent of the sales prices of the  properties  if it markets and sells the
properties in which the Partnership  holds  interests  instead of having a third
party do so. In June 2004, the Managing  General  Partner was paid a disposition
fee of $507,112 related to the sale of the Partnership's  interest in The Pointe
on June 4, 2004.  The fee was netted  against the related gain on disposition of
investment in partnerships.  In July 2004, the Managing General Partner was paid
a  disposition  fee of  $706,250  related to the sale of the  property  owned by
Semper  Village on July 1, 2004.  The fee was netted against the related gain on
disposition of investment in partnerships.

     CRI,  William B. Dockser and H. William  Willoughby are General Partners of
the  Partnership.  In  connection  with a proxy seeking the  liquidation  of the
Partnership, in January 2003, one Limited Partner filed a purported class action
and derivative  lawsuit against these three General  Partners  alleging  certain
deficiencies in the Definitive  Proxy Statement.  After various  motions,  cross
motions,  and appeals,  on February 19, 2004,  the U.S. Court of Appeals for the
Fourth Circuit  granted the  Partnership's  motion to dismiss,  and the case has
been closed. The Partnership Agreement contains provisions pursuant to which the
General  Partners  may seek  indemnification  for  their  costs,  including  the
requirement  that they obtain an opinion of independent  counsel that the matter
is subject to  indemnification.  The required opinion of independent counsel was
received  during the second  quarter of 2004,  at which time a total of $138,933
was reimbursed to the General Partners.

     In connection with the local managing general partner's discounted purchase
of two bank  loans owed by the Local  Partnership  which  owns The  Pointe,  the
Partnership  advanced  $218,000 in February 2004, and $277,749 in March 2004, to
the local managing general partner.  These advances were repaid,  with interest,
at the time of the sale of the  Partnership's  interest  in The  Pointe  in June
2004.

                                      # # #

                                       -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  section  is  based  on  the  financial   statements,   and  contains
information  that  may  be  considered  forward  looking,  including  statements
regarding  the effect of  governmental  regulations.  Actual  results may differ
materially from those  described in the forward  looking  statements and will be
affected  by  a  variety  of  factors  including  national  and  local  economic
conditions,  the  general  level of  interest  rates,  governmental  regulations
affecting  the  Partnership  and  interpretations  of  those  regulations,   the
competitive  environment in which the Partnership operates, and the availability
of working capital.

                          Critical Accounting Policies
                          ----------------------------

     The  Partnership has disclosed its selection and application of significant
accounting  policies in Note 1 of the notes to financial  statements included in
the  Partnership's  annual  report on Form  10-KSB at  December  31,  2004.  The
Partnership accounts for its investments in partnerships (Local Partnerships) by
the equity  method  because the  Partnership  is a limited  partner in the Local
Partnerships.  As such the  Partnership  has no control over the  selection  and
application  of  accounting  policies,  or the use of  estimates,  by the  Local
Partnerships.  Environmental  and operational  trends,  events and uncertainties
that  might  affect the  properties  owned by the Local  Partnerships  would not
necessarily have a significant  impact on the  Partnership's  application of the
equity method of accounting,  since the equity method has been suspended for one
Local  Partnership  which has  cumulative  losses in excess of the amount of the
Partnership's investment in that Local Partnership.

                          New Accounting Pronouncement
                          ----------------------------

     In December  2003,  the Financial  Accounting  Standards  Board issued FASB
Interpretation  No. 46  (revised  December  2003) (FIN 46-R),  Consolidation  of
Variable  Interest  Entities.  FIN 46-R clarifies the  application of Accounting
Research Bulletin 51, Consolidated  Financial  Statements,  for certain entities
that do not  have  sufficient  equity  at risk for the  entity  to  finance  its
activities without additional  subordinated financial support from other parties
or in which equity  investors do not have the  characteristics  of a controlling
financial interest  ("variable interest  entities").  Variable interest entities
within  the  scope of FIN 46-R  will be  required  to be  consolidated  by their
primary  beneficiary.  The primary  beneficiary of a variable interest entity is
determined  to be the party that  absorbs a majority  of the  entity's  expected
losses,  receives a majority of its  expected  returns,  or both.  The  Managing
General  Partner has  evaluated the  partnerships  in which the  Partnership  is
invested and has determined that they are not variable interest entities subject
to consolidation by the Partnership under the provisions of FIN 46-R.

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

     The Partnership's liquidity, with unrestricted cash resources of $4,521,678
as of June 30, 2005, along with the anticipated  future cash  distribution  from
one Local  Partnership,  is  expected  to be  adequate  to meet its  current and
anticipated  operating cash needs. As of August 5, 2005,  there were no material
commitments for capital expenditures.

     The  Partnership's  remaining  obligation with respect to its investment in
Paradise Associates Limited Partnership,  (Paradise Foothills), in the form of a
nonrecourse  purchase  money note,  having a principal  balance of $230,000 plus
accrued  interest of $1,099,796 as of June 30, 2005, is payable in full upon the
earliest of: (i) sale or refinancing of the Local Partnership's rental property;
(ii)  payment  in full of the  Local  Partnership's  permanent  loan;  or  (iii)
maturity  in  2008.  See  the  notes  to  financial  statements  for  additional
information concerning this purchase money note.

                                      -10-

<PAGE>
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
          of Financial Condition and Results of Operations - Continued


     The  purchase  money note,  which is  nonrecourse  to the  Partnership,  is
secured  by the  Partnership's  interest  in  Paradise  Foothills.  There  is no
assurance that the underlying  property will have  sufficient  appreciation  and
equity to enable the Partnership to pay the purchase money note's  principal and
accrued  interest when due. If the 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 Paradise Foothills.  In the
event that the purchase money note remains unpaid upon maturity,  the noteholder
may have the  right to  foreclose  on the  Partnership's  interest  in  Paradise
Foothills.

     Included in due on investments in  partnerships  is $174,600 due to a local
general partner related to Paradise Foothills at both June 30, 2005 and December
31, 2004; accrued interest payable thereon was $75,400 at both June 30, 2005 and
December 31, 2004.  These  amounts will be paid upon the  occurrence  of certain
specified events, as outlined in the Local Partnership's partnership agreement.

     The Managing  General  Partner has received  consent from a majority of BAC
Holders for the  liquidation  of the  Partnership.  It is  anticipated  that the
Partnership's  remaining  obligation,  discussed  above,  would  be  retired  in
conjunction with such Liquidation. Implementation of the liquidation was delayed
by a  lawsuit,  which has been  dismissed.  There can be no  assurance  that the
Liquidation  will  be  completed   pursuant  to  the  Plan  of  Liquidation  and
Dissolution.

     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 six month period  ended June 30,  2005,  existing  cash  resources  were
adequate  to support  operating  cash  requirements.  Cash and cash  equivalents
decreased  $143,674  during the six month period ended June 30, 2005,  primarily
due to operating expenses paid in cash.

     The  Managing  General  Partner  currently  intends  to  retain  all of the
Partnership's  remaining  undistributed  cash  for the  possible  prepayment  or
payment of the  Partnership's  outstanding  purchase money note, for its Plan of
Liquidation, and for operating cash reserves.

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

     The  Partnership  recognized net loss for the three month period ended June
30, 2005, compared to net income for the corresponding period in 2004, primarily
due to a decrease in gain on disposition of investment in partnership related to
the sale of the Partnership's interest in The Pointe in June 2004.  Contributing
to net loss was a decrease in share of income from  partnerships,  partially off
by an increase in interest  revenue and decreases in interest  expense,  general
and  administrative  expenses  and  professional  fees.  Share  of  income  from
partnerships decreased primarily due to lower rental income and higher operating
expenses at one property. Interest revenue increased due to higher cash and cash
equivalent balances, and higher rates in 2005. Interest expense decreased due to
a lower  purchase money note balance  relating to the sale of the  Partnership's
interest in The Pointe in 2004.  General and  administrative  expenses decreased
primarily due to lower reimbursed payroll costs and lower printing fees in 2005.

     The Partnership recognized net loss for the six month period ended June 30,
2005, compared to net income for the corresponding period in 2004, primarily due
to a decrease in gain on  disposition  of investment in partnership as discussed
above.  Contributing  to net  loss  was a  decrease  in  share  of  income  from
partnerships,  partially offset by an increase in interest revenue and decreases
in interest expense,  professional fees and general and administrative expenses,
all as discussed above.  Professional legal fees decreased  primarily due to the
dismissal of a lawsuit in 2004. See Note 3, above.

                                      -11-

<PAGE>
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
          of Financial Condition and Results of Operations - Continued


     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  share of income from partnerships for the three and
six month  periods  ended June 30, 2005,  did not include  losses of $28,925 and
$57,849  respectively,  compared to excluded losses of $100,465 and $200,930 for
the three and six month periods ended June 30, 2004, respectively.

     No other  significant  changes in the  Partnership's  operations have taken
place during the six month period ended June 30, 2005.


Item 3. Controls and Procedures


     In July  2005,  representatives  of the  Managing  General  Partner  of the
Partnership  carried out an  evaluation of the  effectiveness  of the design and
operation of the Partnership's  disclosure controls and procedures,  pursuant to
Exchange Act Rules  13a-15 and 15d-15.  The  Managing  General  Partner does not
expect that the  Partnership's  disclosure  controls and procedures will prevent
all error and all fraud.  A control  system,  no matter how well  conceived  and
operated,  can provide only  reasonable  assurance  that the  objectives  of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource  constraints,  and the benefits of controls must be
considered relative to their costs.  Because of the inherent  limitations in all
control systems,  no evaluation of controls can provide absolute  assurance that
all control issues have been detected.  These inherent  limitations  include the
realities that judgments in  decision-making  can be faulty, and that breakdowns
can occur  because  of simple  error or  mistake.  The  design of any  system of
controls also is based in part upon certain  assumptions about the likelihood of
future  events,  and there can be no  assurance  that any design will succeed in
achieving its stated goals under all  potential  future  conditions.  Over time,
controls may become inadequate  because of changes in conditions,  or the degree
of compliance  with the policies or procedures may  deteriorate.  Because of the
inherent  limitations in a cost-effective  control system,  misstatements due to
error or fraud may occur and not be detected. Based on the July 2005 evaluation,
and subject to the  foregoing,  the  Principal  Executive  Officer and Principal
Financial  Officer  concluded  that the  Partnership's  disclosure  controls and
procedures  are effective as of the end of the period  covered by this report to
alert  them in a timely  manner  to any  material  information  relating  to the
Partnership that must be included in the Partnership's periodic SEC filings, and
particularly  during  the  period in which  this  report is being  prepared.  In
addition,  there have been no significant changes in the Partnership's  internal
control over financial  reporting that occurred  during the  Partnership's  most
recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Partnership's internal control over financial reporting.


Part II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities

     See Note 2.a. of the notes to  financial  statements  contained  in Part I,
Item 1, hereof,  for  information  concerning the  Partnership's  default on one
purchase money note.

                                      -12-

<PAGE>
Part II. OTHER INFORMATION
Item 5. Other Information

     a.   There is no established market for the purchase and sale of Beneficial
          Assignee  Certificates  (BACs),  although various  informal  secondary
          market services exist. Due to the limited markets, however,  investors
          may be unable to sell or otherwise dispose of their BACs.

     b.   On May 10, 2005, the Partnership filed a Current Report on Form 8-K to
          report  that  effective  at  close of  business  on May 6,  2005,  the
          Principal  Financial  Officer and  Principal  Accounting  Officer (one
          individual)  of C.R.I.,  Inc.  (the  Managing  General  Partner of the
          Registrant) resigned.  The duties of these positions have been assumed
          by H.  William  Willoughby.  Mr.  Willoughby  has held the  office  of
          President  of  CRI  since  1990  and  has  also  served  as one of its
          Directors. He has no employment contract.


Item 6. Exhibits

Exhibit No.    Description
----------     -----------

   31.1        Certification  of  Principal  Executive  Officer,  pursuant to 18
               U.S.C.  Section 1350,  as adopted  pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002.

   31.2        Certification  of  Principal  Financial  Officer,  pursuant to 18
               U.S.C.  Section 1350,  as adopted  pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002.

    32         Certification  of  Principal   Executive  Officer  and  Principal
               Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

All other Items are not applicable.

                                      -13-

<PAGE>
                                    SIGNATURE


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

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

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



August 5, 2005                        by: /s/ H. William Willoughby
--------------                            --------------------------------------
DATE                                      H. William Willoughby,
                                            Director, President,
                                            and Secretary

                                      -14-

<PAGE>