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








                    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 March 31, 2001


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



                         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 MARCH 31, 2001



                                                                           Page
                                                                           ----

Part I - FINANCIAL INFORMATION

Item 1.  Financial Statements

           Balance Sheets
              - March 31, 2001 and December 31, 2000....................     1

           Statements of Operations and Accumulated Losses
              - for the three months ended March 31, 2001 and 2000 .....     2

           Statements of Cash Flows
              - for the three months ended March 31, 2001 and 2000......     3

           Notes to  Financial Statements
              - March 31, 2001 and 2000.................................     4

Item 2.    Management's Discussion and Analysis of Financial Condition
              and Results of Operations.................................     9


Part II - OTHER INFORMATION

Item 3.    Defaults upon Senior Securities..............................    11

Item 5.    Other Information............................................    11

Item 6.    Exhibits and Reports on Form 8-K.............................    11

Signature  ............................................................     12





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


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                                 BALANCE SHEETS


                                     ASSETS


                                                     March 31,     December 31,
                                                       2001           2000
                                                   -------------   ------------
                                                    (Unaudited)

Investments in and advances to partnerships ....   $  1,346,800    $    588,661
Cash and cash equivalents ......................      7,918,995       8,501,288
Acquisition fees, principally paid to related,
  parties, net of accumulated amortization of
  $116,245 and $114,318, respectively ..........        115,110         117,037
Property purchase costs,
  net of accumulated amortization of $106,120
  and $104,380 respectively ....................        102,641         104,381
Other assets ...................................          2,072           3,444
                                                    -----------    ------------

      Total assets .............................   $  9,485,618    $  9,314,811
                                                    ===========    ============



                        LIABILITIES AND PARTNERS' DEFICIT


Due on investments in partnerships .............   $  2,522,600    $  2,522,600
Accrued interest payable .......................      9,290,209       8,923,271
Accounts payable and accrued expenses ..........         45,713          78,324
                                                   ------------    ------------

      Total liabilities ........................     11,858,522      11,524,195
                                                   ------------    ------------

Commitments and contingencies

Partners' capital (deficit):

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

                                                     21,204,500      21,204,500

  Less:
    Accumulated distributions to partners ......     (4,908,656)     (4,908,656)
    Offering costs .............................     (2,570,535)     (2,570,535)
    Accumulated losses .........................    (16,098,213)    (15,934,693)
                                                   ------------    ------------

      Total partners' deficit ..................     (2,372,904)     (2,209,384)
                                                   ------------    ------------

      Total liabilities and partners' deficit ..   $  9,485,618    $  9,314,811
                                                   ============    ============




                          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
                                                                               March 31,
                                                                     ----------------------------
                                                                         2001            2000
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
Share of income from partnerships ................................   $    130,829    $     26,543
                                                                     ------------    ------------

Other revenue and expenses:

  Revenue:
    Interest .....................................................        107,057         116,035
                                                                     ------------    ------------


  Expenses:
    Interest .....................................................        366,938         324,283
    General and administrative ...................................         36,097          35,805
    Management fee ...............................................         24,480          24,482
    Professional fees ............................................         17,138          15,566
    Amortization of deferred costs ...............................          3,668           3,667
                                                                     ------------    ------------

                                                                          448,321         403,803
                                                                     ------------    ------------

      Total other revenue and expenses ...........................       (341,264)       (287,768)
                                                                     ------------    ------------

Loss before extraordinary gain from extinguishment of debt .......       (210,435)       (261,225)

Extraordinary gain from extinguishment of debt ...................         46,915            --
                                                                     ------------    ------------

Net loss .........................................................       (163,520)       (261,225)

Accumulated losses, beginning of period ..........................    (15,934,693)    (15,110,396)
                                                                     ------------    ------------

Accumulated losses, end of period ................................   $(16,098,213)   $(15,371,621)
                                                                     ============    ============


Net loss allocated to General Partners (1.51%) ...................   $     (2,469)   $     (3,944)
                                                                     ============    ============


Net loss allocated to Initial and Special Limited
   Partners (2.49%)  .............................................   $     (4,072)   $     (6,505)
                                                                     ============    ============


Net loss allocated to BAC Holders (96%) ..........................   $   (156,979)   $   (250,776)
                                                                     ============    ============


Net loss per BAC based on 21,158 BACs outstanding ................   $      (7.42)   $     (11.85)
                                                                     ============    ============
</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 three months ended
                                                                                          March 31,
                                                                                --------------------------
                                                                                   2001            2000
                                                                                -----------    -----------
<S>                                                                             <C>            <C>
Cash flows from operating activities:
  Net loss ..................................................................   $  (163,520)   $  (261,225)

  Adjustments to reconcile net loss to net cash used in operating activities:
    Share of income from partnerships .......................................      (130,829)       (26,543)
    Amortization of deferred costs ..........................................         3,668          3,667
    Extraordinary gain from extinguishment of debt ..........................       (46,915)          --

    Changes in assets and liabilities:
      Increase in accrued interest receivable on advances to partnerships ...        (5,906)        (6,082)
      Decrease (increase) in other assets ...................................         1,372         (1,285)
      Increase in accrued interest payable ..................................       366,938        324,283
      Decrease in accounts payable and accrued expenses .....................       (32,611)       (72,463)
                                                                                -----------    -----------

         Net cash used in operating activities ..............................        (7,803)       (39,648)
                                                                                -----------    -----------


Cash flows from investing activities:
  Additional investment in partnership ......................................      (575,000)          --
  Receipt of distributions from partnerships ................................           510           --
                                                                                -----------    -----------

         Net cash used in investing activities ..............................      (574,490)          --
                                                                                -----------    -----------

Net decrease in cash and cash equivalents ...................................      (582,293)       (39,648)

Cash and cash equivalents, beginning of period ..............................     8,501,288      8,086,701
                                                                                -----------    -----------

Cash and cash equivalents, end of period ....................................   $ 7,918,995    $ 8,047,053
                                                                                ===========    ===========

</TABLE>


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

                                       -3-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             March 31, 2001 and 2000

                                   (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 March 31, 2001,  and the results of its operations and its cash flows for the
three months ended March 31, 2001 and 2000.  The results of  operations  for the
interim  period  ended March 31, 2001,  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
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  accounting  principles  generally  accepted in the
United  States have been  condensed  or omitted  pursuant to such  instructions.
These  condensed  financial  statements  should be read in conjunction  with the
consolidated   financial   statements   and  notes   thereto   included  in  the
Partnership's annual report on Form 10-KSB at December 31, 2000.

     Prior to the year 2000, the financial  statements of the  Partnership  were
consolidated with the accounts of two intermediary  limited  partnerships  which
had invested in Local Partnerships  which, in turn, owned and operated apartment
properties.  Those two properties  were sold during 1999,  and the  intermediary
limited  partnerships were closed.  Thus, the financial  statements for the year
2000 and thereafter are not consolidated.


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

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

                              Purchase money notes

     The  Partnership's  obligations  with respect to its  investments  in Local
Partnerships,  in the form of purchase money notes having an aggregate principal
balance of $2,348,000 plus aggregate  accrued interest of $9,214,809 as of March
31, 2001,  are payable in full upon the earliest of: (i) sale or  refinancing of
the respective Local Partnership's rental property;  (ii) payment in full of the
respective Local Partnership's  permanent loan; or (iii) maturity.  The purchase
money  note  related  to the  Paradise  Associates,  L.P.  (Paradise  Foothills)
property, in the principal amount of $230,000,  matured on January 30, 1996, but
has not been paid or extended,  as discussed below. The two purchase money notes
related  to Willow  Creek II  Limited  Partnership  (Willow  Creek  II),  in the
aggregate principal amount of $1,475,000,  matured on January 14, 2001, but have
not been paid or extended, as discussed below. The remaining purchase money note
matures in 2003.

                                       -4-

<PAGE>

                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             March 31, 2001 and 2000

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     The purchase money notes,  which are  nonrecourse to the  Partnership,  are
generally  secured  by  the  Partnership's  interest  in  the  respective  Local
Partnerships.  There is no assurance  that the underlying  properties  will have
sufficient appreciation and equity to enable the Partnership to pay the purchase
money notes'  principal and accrued  interest when due. If a purchase money note
is not paid in accordance with its terms,  the  Partnership  will either have to
renegotiate  the terms of repayment or risk losing its  partnership  interest in
the respective Local Partnership.

     The  Partnership's  inability  to pay  certain of the  purchase  money note
principal and accrued interest balances when due, and the resulting  uncertainty
regarding the Partnership's  continued  ownership  interest in the related Local
Partnerships,  does not adversely impact the Partnership's  financial  condition
because the  purchase  money  notes are  nonrecourse  and secured  solely by the
Partnership's interest in the related Local Partnerships.  Therefore, should the
investment in any of the Local  Partnerships  with matured or maturing  purchase
money notes not produce  sufficient  value to satisfy the related purchase money
notes, the  Partnership's  exposure to loss is limited because the amount of the
nonrecourse indebtedness of each of the matured or maturing purchase money notes
exceeds the carrying  amount of the  investment in, and advances to, each of the
related Local  Partnerships.  Thus,  even a complete  loss of the  Partnership's
interest in one of these Local  Partnerships  would not have a material  adverse
impact on the financial condition of the Partnership. However, since these notes
remain  unpaid,  the  noteholders  may  have  the  right  to  foreclose  on  the
Partnership's  interest in the  related  Local  Partnerships.  In the event of a
foreclosure, the excess of the nonrecourse indebtedness over the carrying amount
of the Partnership's investment in the related Local Partnership would be deemed
cancellation of indebtedness  income, which would be taxable to Limited Partners
at a  federal  tax  rate  of  up to  39.6%.  Additionally,  in  the  event  of a
foreclosure,  the Partnership would lose its investment in the Local Partnership
and,  likewise,  its  share of any  future  cash flow  distributed  by the Local
Partnership from rental operations,  mortgage debt refinancings,  or the sale of
the real estate.

     Interest  expense on the  Partnership's  purchase money notes for the three
month  periods  ended  March  31,  2001  and  2000 was  $366,938  and  $324,283,
respectively.  The  accrued  interest  payable on the  purchase  money  notes of
$9,214,809  and  $8,847,871  as  of  March  31,  2001  and  December  31,  2000,
respectively,  is due on the  respective  maturity  dates of the purchase  money
notes or earlier, in some instances, if (and to the extent of a portion thereof)
the related Local Partnership has distributable net cash flow, as defined in the
relevant Local Partnership agreement.

                               Paradise Foothills

     The  Partnership  defaulted on its purchase money note relating to Paradise
Foothills  when the note  matured  on  January  30,  1996 and was not paid.  The
default amount included principal and accrued interest of $230,000 and $371,464,
respectively.  As of  May 2,  2001,  principal  and  accrued  interest  totaling
$230,000 and  $762,880,  respectively,  were due. The Managing  General  Partner
proposed an  extension of the purchase  money note  maturity  date until May 31,
2003,  coterminous  with  the  expiration  of the  related  Local  Partnership's
provisional  workout  agreement related to its mortgage loan. As of May 2, 2001,
the Managing  General  Partner  continues to await a response  from the purchase
money  noteholder.  There is no assurance that the Managing General Partner will
reach  an  agreement  of  any  kind  with  the  noteholder.  Due  to a  possible
foreclosure by the  noteholder,  there can be no assurance that the  Partnership
will be able to retain

                                       -5-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             March 31, 2001 and 2000

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

its interest in the Local Partnership. The uncertainty regarding the continued
ownership of the Partnership's interest in the related Local Partnership does
not adversely impact the Partnership's financial condition, as discussed above.
In the event of a foreclosure, the excess of the nonrecourse indebtedness over
the carrying amount of the Partnership's investment in the related Local
Partnership would be deemed cancellation of indebtedness income, which would be
taxable to Limited Partners at a federal tax rate of up to 39.6%. Additionally,
in the event of a foreclosure, the Partnership would lose its investment in the
Local Partnership and, likewise, its share of any future cash flow distributed
by the Local Partnership from rental operations, mortgage debt refinancings, or
the sale of the real estate. The Partnership did not receive any distributions
from Paradise Foothills during the three month periods ended March 31, 2001 and
2000, and its aggregate share of income from this Local Partnership was $0 for
the three month periods ended March 31, 2001 and 2000.

     The Local  Partnership  has recently  made  application  to  refinance  its
mortgage loan with the Federal National Mortgage Association, in connection with
the  discounted  payoff of its existing  mortgage  loan. As of May 2, 2001,  the
Local Partnership has not received a commitment for such refinancings.

     The  amount  due to a  local  general  partner  of  Paradise  Foothills  of
$174,600,  plus accrued interest of $75,400 at March 31, 2001, will be paid upon
the  occurrence  of  specified  events,  as  outlined  in the  respective  Local
Partnership's partnership agreement.

                                 Willow Creek II

     The Partnership defaulted on its two purchase money notes related to Willow
Creek II on  January  14,  2001 when the notes  matured  and were not paid.  The
default  amount  included  principal  and  accrued  interest of  $1,475,000  and
$7,583,743,  respectively.  As of May 2, 2001,  principal  and accrued  interest
totaling  $1,475,000  and  $7,956,994  were  due.  On  February  15,  2001,  the
Partnership  offered the  noteholders a discounted  payoff of the purchase money
notes,  which offer the noteholders  rejected on February 28, 2001. As of May 2,
2001, the Partnership is awaiting a counter-offer from the noteholders.

b.   Additional investment in local partnership
     ------------------------------------------

     The Partnership has an investment in Sheridan West L.P. (Semper), the Local
Partnership which owns Semper Village Apartments in Westminster,  Colorado.  The
Local Partnership, in turn, was the maker of two purchase money notes related to
the acquisition of the property. The security for these two purchase money notes
included the  Partnership's  limited partner interest in Semper.  In conjunction
with the discounted  payoff of these two purchase money notes, in December 2000,
the Partnership agreed to make an additional  investment in Semper in the amount
of $574,000,  which amount was disbursed to Semper in January 2001.  Semper,  in
turn,  paid off the two purchase  money notes at a discount in January 2001. The
discounted  payoff of the purchase  money notes resulted in  extraordinary  gain
from extinguishment of debt of $46,915 for financial statement purposes in 2001.

     The  Partnership  also  agreed to  purchase  for $1,000  the 0.01%  general
partner  interest in Semper held by the  developer  and original  local  general
partner of Semper. This agreement was

                                       -6-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             March 31, 2001 and 2000

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

made in December  2000,  and the funds were disbursed in January 2001. The Local
Partnership  has  converted  the 0.01%  general  partner  interest  to a limited
partner interest, so the Partnership now holds a 99.00% limited partner interest
in Semper.

c.   Advances to Local Partnership
     -----------------------------

     Mesa  Partners  Limited  Partnership  (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 $262,500 to the
Local  Partnership in 1987.  Repayment of this loan,  with simple interest at 9%
per annum, is expected to occur upon sale or refinancing of the property.  As of
March 31,  2001 and  December  31,  2000,  accrued  interest  was  $322,594  and
$316,688, respectively.

d.   Summarized financial information
     --------------------------------

     Combined balance sheets and combined  statements of operations for the four
Local Partnerships in which the Partnership is invested as of March 31, 2001 and
2000,  follow.  The combined  statements  have been  compiled  from  information
supplied by the management agents of the projects and are unaudited.

                        COMBINED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                  For the three months ended
                                                           March 31,
                                                 ----------------------------
                                                    2001             2000
                                                 -----------      -----------

          Revenue:
            Rental                               $ 1,540,595      $ 1,451,878
            Other                                     95,661          100,929
                                                 -----------      -----------

               Total revenue                       1,636,256        1,552,807
                                                 -----------      -----------

          Expenses:
            Operating                                774,869          751,599
            Interest                                 507,926          513,074
            Depreciation and amortization            277,163          271,231
                                                 -----------      -----------

               Total expenses                      1,559,958        1,535,904
                                                 -----------      -----------

          Net income                             $    76,298      $    16,903
                                                 ===========      ===========


     As of March 31, 2001 and 2000, the Partnership's share of cumulative losses
to  date  for  two  of  the  Local  Partnerships  exceeded  the  amount  of  the
Partnership's  investments  in and  advances  to  those  Local  Partnerships  by
$6,603,533  and  $6,748,717,  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.

                                       -7-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             March 31, 2001 and 2000

                                   (Unaudited)


3.   RELATED PARTY TRANSACTIONS

     In accordance with the terms of the Partnership Agreement,  the Partnership
is obligated to reimburse the Managing  General  Partner for its direct expenses
in managing the Partnership. For the three months ended March 31, 2001 and 2000,
the Partnership paid $30,590 and $24,571,  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.

     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 and
$24,482  for each of the three  month  periods  ended  March 31,  2001 and 2000,
respectively.



                                      # # #

                                       -8-

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


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

                          Financial Condition/Liquidity

     The Partnership's liquidity, with unrestricted cash resources of $7,918,995
as of March 31, 2001,  along with  anticipated  future cash  distributions  from
Local  Partnerships,  is  expected  to be  adequate  to  meet  its  current  and
anticipated  operating  cash  needs.  As of May 2, 2001,  there were no material
commitments for capital expenditures.

     The  Partnership's  obligations  with respect to its  investments  in Local
Partnerships,  in the form of purchase money notes having an aggregate principal
balance of $2,348,000 plus aggregate  accrued interest of $9,214,809 as of March
31, 2001,  are payable in full upon the earliest of: (i) sale or  refinancing of
the respective Local Partnership's rental property;  (ii) payment in full of the
respective Local Partnership's permanent loan; or (iii) maturity.

     The purchase money note related to the Paradise Associates,  L.P. (Paradise
Foothills) property, in the principal amount of $230,000, matured on January 30,
1996, but has not been paid or extended. The two purchase money notes related to
Willow  Creek  II  Limited  Partnership  (Willow  Creek  II),  in the  aggregate
principal  amount of $1,475,000,  matured on January 14, 2001, but have not been
paid or extended.  The remaining  purchase  money note matures in 2003. See Note
2.a. of the notes to financial  statements  contained in Part I, Item 1, hereof,
for additional  information concerning the Partnership's default on the purchase
money notes related to Paradise Foothills and Willow Creek II.

     The purchase money notes,  which are  nonrecourse to the  Partnership,  are
generally  secured  by  the  Partnership's  interest  in  the  respective  Local
Partnerships.  There is no assurance  that the underlying  properties  will have
sufficient appreciation and equity to enable the Partnership to pay the purchase
money notes'  principal and accrued  interest when due. If a purchase money note
is not paid in accordance with its terms,  the  Partnership  will either have to
renegotiate  the terms of repayment or risk losing its  partnership  interest in
the respective Local Partnership.

     The  Partnership's  inability  to pay  certain of the  purchase  money note
principal and accrued interest balances when due, and the resulting  uncertainty
regarding the Partnership's  continued  ownership  interest in the related Local
Partnerships,  does not adversely impact the Partnership's  financial  condition
because the  purchase  money  notes are  nonrecourse  and secured  solely by the
Partnership's interest in the related Local Partnerships.  Therefore, should the
investment in any of the Local  Partnerships  with matured or maturing  purchase
money notes not produce  sufficient  value to satisfy the related purchase money
notes, the  Partnership's  exposure to loss is limited because the amount of the
nonrecourse indebtedness of each of the matured or maturing purchase money notes
exceeds the carrying  amount of the  investment in, and advances to, each of the
related Local  Partnerships.  Thus,  even a complete  loss of the  Partnership's
interest in one of these Local  Partnerships  would not have a material  adverse
impact on the financial condition of the Partnership. However, since these notes
remain  unpaid,  the  noteholders  may  have  the  right  to  foreclose  on  the
Partnership's  interest in the  related  Local  Partnerships.  In the event of a
foreclosure, the excess of the nonrecourse indebtedness over the carrying amount
of the Partnership's investment in the related Local Partnership would be deemed
cancellation of

                                       -9-

<PAGE>
Part I. FINANCIAL INFORMATION

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


indebtedness income, which would be taxable to Limited Partners at a federal tax
rate  of  up  to  39.6%.  Additionally,  in  the  event  of a  foreclosure,  the
Partnership  would lose its investment in the Local  Partnership and,  likewise,
its share of any future  cash flow  distributed  by the Local  Partnership  from
rental operations, mortgage debt refinancings, or the sale of the real estate.

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

     Included in due on investments in  partnerships  is $174,600 due to a local
general partner related to Paradise  Associates,  L.P.  (Paradise  Foothills) at
both March 31, 2001, and December 31, 2000; accrued interest payable thereon was
$75,400 at both March 31, 2001,  and December  31, 2000.  These  amounts will be
paid upon the  occurrence  of  certain  specified  events,  as  outlined  in the
respective Local Partnership's partnership agreement.

     The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient  cash is available for operating  requirements.
For the three  month  periods  ended  March 31,  2001 and  2000,  existing  cash
resources were adequate to support  operating cash  requirements.  Cash and cash
equivalents  decreased  during the three months ended March 31, 2001,  primarily
due to an additional investment in Sheridan West L.P. (Semper).

     The  Managing  General  Partner  currently  intends  to  retain  all of the
Partnership's   remaining   undistributed  cash  for  the  possible   repayment,
prepayment or retirement of the Partnership's  outstanding  purchase money notes
related to the Local Partnerships.

                              Results of Operations

     The Partnership's net loss for the three month period ended March 31, 2001,
decreased from the corresponding  period in 2000 primarily due to an increase in
share of income from partnership as the result of higher operating income at one
property  which had  previously  been  excluded due to  accumulated  unallowable
losses,  and also due to  extraordinary  gain from  extinguishment  of debt as a
result of the  discounted  payoff of the purchase  money notes of Sheridan  West
L.P.  (Semper).  Offsetting the decrease in the  Partnership's  net loss were an
increase in interest  expense on purchase money notes due to the  compounding of
interest and a decrease in interest income due to lower cash and cash equivalent
balances and lower interest rates in 2001.

     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 month
periods  ended  March 31,  2001 and 2000 did not  include  losses of $60,697 and
$80,796, respectively.

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



                                      -10-

<PAGE>



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 certain
purchase money notes.


Item 5. Other Information

     There is no established market for the purchase and sale of 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.

     On January 26, 2001, Equity Resources Lexington Fund (Lexington)  initiated
an unregistered  tender offer to purchase up to 994 of the outstanding BAC units
at a price of $125 per unit;  the offer expired  February 26, 2001. On April 23,
2001,  Lexington initiated an unregistered tender offer to purchase up to 589 of
the outstanding BAC units at a price of $150 per unit; the offer expires May 22,
2001.  Lexington is unaffiliated  with the  Partnership or the Managing  General
Partner.  The  prices  offered  were  determined  solely  at the  discretion  of
Lexington and do not necessarily represent the fair market value of each BAC.

     The Managing General Partner has not expressed,  and does not express,  any
opinion and remains  neutral  toward any offer for the  purchase of BACs such as
that described above.

     If  more  than  five  percent  of  the  total  outstanding  BAC  units  are
transferred  due to sale in any one calendar year (not counting  certain  exempt
transfers),  the Partnership could be taxed as a "publicly traded  partnership,"
with potentially  severe tax implications for the Partnership and its investors.
Specifically, the Partnership could be taxed as a corporation and the income and
losses from the  Partnership  would no longer be considered a passive  activity.
For the  calendar  year  2001 to May 2,  2001,  BAC units  transferred  have not
exceeded 4.9% of the total outstanding BACs, therefore,  the Partnership has not
halted recognition of transfers.


Item 6. Exhibits and Reports on Form 8-K

     a.   None

     b.   No  reports  on Form 8-K were  filed  with the  Commission  during the
          quarter ended March 31, 2001.

     All other items are not applicable.

                                      -11-

<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




May 2, 2001                           by:  /s/ Michael J. Tuszka
---------------                            -------------------------------------
DATE                                       Michael J. Tuszka
                                             Vice President
                                             and Chief Accounting Officer
                                             (Principal Financial Officer
                                             and Principal Accounting Officer)

                                      -12-