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




                          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, 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 MARCH 31, 2005



                                                                          Page


Part I - FINANCIAL INFORMATION

Item 1.  Financial Statements

         Balance Sheets
           - March 31, 2005 and December 31, 2004..........................   1

         Statements of Operations and Accumulated Losses
           - for the three months ended March 31, 2005 and 2004 ...........   2

         Statements of Cash Flows
           - for the three months ended March 31, 2005 and 2004............   3

         Notes to  Financial Statements
           - March 31, 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.................................................  12

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>

                                                                                        March 31,     December 31,
                                                                                          2005            2004
                                                                                      -------------   ------------
                                                                                       (Unaudited)
<S>                                                                                   <C>             <C>
Investments in partnerships held for sale .........................................   $    635,015    $    617,151
Cash and cash equivalents .........................................................      4,579,245       4,665,352
Other assets ......................................................................            299             173
                                                                                      ------------    ------------

      Total assets ................................................................   $  5,214,559    $  5,282,676
                                                                                      ============    ============



                        LIABILITIES AND PARTNERS' CAPITAL


Due on investments in partnerships ................................................   $    404,600    $    404,600
Accrued interest payable ..........................................................      1,158,979       1,142,762
Accounts payable and accrued expenses .............................................         70,457          87,804
                                                                                      ------------    ------------

      Total liabilities ...........................................................      1,634,036       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 ............................................................     (4,641,569)     (4,574,582)
                                                                                      ------------    ------------

      Total partners' capital .....................................................      3,580,523       3,647,510
                                                                                      ------------    ------------

      Total liabilities and partners' capital .....................................   $  5,214,559    $  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
                                                                                March 31,
                                                                     ----------------------------
                                                                         2005             2004
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
Share of income from partnerships ................................   $     17,864    $     21,414
                                                                     ------------    ------------

Other revenue and expenses:

  Revenue:
    Interest .....................................................         23,400          11,263
                                                                     ------------    ------------

  Expenses:
    Interest .....................................................         16,217          51,132
    General and administrative ...................................         49,502          51,201
    Management fee ...............................................         24,480          24,480
    Professional fees ............................................         22,000          73,628
                                                                     ------------    ------------

                                                                          112,199         200,441
                                                                     ------------    ------------

      Total other revenue and expenses ...........................        (88,799)       (189,178)
                                                                     ------------    ------------

Loss before gain on disposition of investment in partnership .....        (70,935)       (167,764)

Gain on disposition of investment in partnership .................          3,948              --
                                                                     ------------    ------------

Net loss .........................................................        (66,987)       (167,764)

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

Accumulated losses, end of period ................................   $ (4,641,569)   $(12,671,545)
                                                                     ============    ============



Net loss allocated to General Partners (1.51%) ...................   $     (1,011)   $     (2,533)
                                                                     ============    ============


Net loss allocated to Initial and Special Limited Partners (2.49%)   $     (1,668)   $     (4,177)
                                                                     ============    ============


Net loss allocated to BAC Holders (96%) ..........................   $    (64,308)   $   (161,054)
                                                                     ============    ============


Net loss per BAC, based on 21,158 BACs outstanding ...............   $      (3.04)   $      (7.61)
                                                                     ============    ============
</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 three months ended
                                                                                         March 31,
                                                                                ---------------------------
                                                                                    2005          2004
                                                                                -----------    ------------
<S>                                                                             <C>            <C>
Cash flows from operating activities:
  Net loss ..................................................................   $   (66,987)   $  (167,764)

  Adjustments to reconcile net loss to net cash used in operating activities:
    Share of income from partnerships .......................................       (17,864)       (21,414)
    Gain on disposition of investment in partnership ........................        (3,948)            --

    Changes in assets and liabilities:
      Increase in accrued interest receivable on advances to partnerships ...            --         (6,617)
      (Increase) decrease in other assets ...................................          (126)             2
      Increase in accrued interest payable ..................................        16,217         51,132
      (Decrease) increase in accounts payable and accrued expenses ..........       (17,347)        35,192
                                                                                -----------    -----------

        Net cash used in operating activities ...............................       (90,055)      (109,469)
                                                                                -----------    -----------

Cash flows from investing activities:
  Proceeds from disposition of investment in partnership ....................         3,948             --
  Loans to local managing general partner ...................................            --       (495,749)
                                                                                -----------    -----------

        Net cash provided by (used in) investing activities .................         3,948       (495,749)
                                                                                -----------    -----------

Net decrease in cash and cash equivalents ...................................       (86,107)      (605,218)

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

Cash and cash equivalents, end of period ....................................   $ 4,579,245    $ 2,865,200
                                                                                ===========    ===========

</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, 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 March 31, 2005,  and the results of its operations and its cash flows for the
three month periods ended March 31, 2005 and 2004. The results of operations for
the interim period ended March 31, 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  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 of America 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
     ---------------------------------------------------------------

                               Purchase money note
                               -------------------

     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 $1,083,579 as of March 31, 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 purchase money note matures in 2008.

                                       -4-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             March 31, 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
month  periods  ended  March  31,  2005  and  2004,  was  $16,217  and  $51,132,
respectively.  The accrued interest payable on the remaining purchase money note
of  $1,083,579  and  $1,067,362  as of March 31,  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.

                               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. 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  has begun  discussions
with the  local  managing  general  partner  to sell its  interest  in  Paradise
Foothills to the local managing  general  partner.  There is no assurance that a
sale of the Partnership's interest in Paradise Foothills will occur.

     Due  to the  possible  sale  of  the  Partnership's  interest  in  Paradise
Foothills, the Partnership's basis in the Local Partnership,  along with the net
unamortized  amount of  acquisition  fees and  property  purchase  costs,  which
totaled $0 at both March 31, 2005 and December 31, 2004,  has been  reclassified
to investments in partnerships held for sale in the accompanying balance sheets.

     The principal  amount due to a local general partner of Paradise  Foothills
of $174,600,  plus accrued  interest of $75,400 at March 31, 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 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.

                                       -5-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             March 31, 2005 and 2004

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

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

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

     In  connection  with the  refinancing  of the mortgage  loan secured by the
property  owned by Paradise  Foothills in March 2003, the  Partnership  advanced
$100,000  to the Local  Partnership  for  closing  costs and to  facilitate  the
repayment  of the  existing  mortgage  loan.  The  partners  modified  the Local
Partnership  agreement to give the new loan  priority in repayment  from sale or
refinancing  proceeds over all other  partner  loans.  For  financial  reporting
purposes,  this loan has been reduced to zero by the  Partnership as a result of
losses at the related Local Partnership level.

                                   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.

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

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

     The  Partnership  has begun  discussions  with the local  managing  general
partner to sell its  interest  in Willow  Creek II Limited  Partnership  (Willow
Creek  II) to the  local  managing  general  partner.  The  Partnership  is also
actively marketing Willow Creek for sale to a third party. There is no assurance
that a sale of the Partnership's interest in Willow Creek II, or the property it
owns, will occur.

     Due to the possible sale of the Partnership's  interest in Willow Creek II,
or the property it owns, the Partnership's basis in the Local Partnership, along
with the net unamortized amount of acquisition fees and property purchase costs,
which  totaled  $635,015  and  $617,151 at March 31, 2005 and December 31, 2004,
respectively, has been reclassified to investments in partnerships held for sale
in the accompanying balance sheets.

                                       -6-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             March 31, 2005 and 2004

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

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 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 quarter of 2005, the Partnership  received  additional proceeds
of $3,948 related to the sale, resulting in gain on disposition of investment in
partnership of $3,948 for financial statement purposes in 2005.

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

     Combined  statements of operations for the two and four Local  Partnerships
in  which  the  Partnership  was  invested  as  of  March  31,  2005  and  2004,
respectively,   follow.   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).

                                       -7-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             March 31, 2005 and 2004

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

<TABLE>
<CAPTION>
                                         COMBINED STATEMENTS OF OPERATIONS
                                                    (Unaudited)

                                                                 For the three months ended
                                                                          March 31,
                                                  -----------------------------------------------------------
                                                     2005            2004              2005          2004
                                                  -----------------------------------------------------------
                                                    Equity                            Equity
                                                    Method         Suspended          Method        Suspended
                                                  ----------       ----------       ----------      ----------
         <S>                                      <C>              <C>              <C>             <C>
         Number of Local Partnerships                 1                1                2               2
                                                      =                =                =               =

         Revenue:
           Rental                                 $  277,130       $  269,393       $  733,678      $  720,317
           Other                                      11,973           23,969           29,708          73,070
                                                  ----------       ----------       ----------      ----------

             Total revenue                           289,103          293,362          763,386         793,387
                                                  ----------       ----------       ----------      ----------

         Expenses:
           Operating                                 173,481          156,457          402,370         480,717
           Interest                                   43,776           97,839          159,927         242,308
           Depreciation and amortization              53,800           68,285          163,755         171,850
                                                  ----------       ----------       ----------      ----------

             Total expenses                          271,057          322,581          726,052         894,875
                                                  ----------       ----------       ----------      ----------

         Net income (loss)                        $   18,046       $  (29,219)      $   37,334      $ (101,488)
                                                  ==========       ==========       ==========      ==========

         Partnership's share of Local
           Partnership net income                 $   17,864       $       --       $   27,320      $       --

         Interest receivable - The Pointe                 --               --               --          (5,906)
                                                  ------------------------------------------------------------

         Share of income from partnerships                  $17,864                            $21,414
                                                            =======                            =======
</TABLE>


     As of March 31, 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
$5,948,406  and  $7,851,482,  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 $24,804 and
$40,437 for the three month periods ended March 31, 2005 and 2004, respectively,
to the Managing General Partner as direct  reimbursement of expenses incurred on
behalf of the Partnership.  Such reimbursed expenses are included in general and
administrative expenses in the accompanying statements of operations.

                                       -8-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                             March 31, 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 March 31, 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's   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 $4,579,245
as of March 31, 2005,  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 4, 2005,  there were no material
commitments for capital expenditures.

     The  Partnership's  remaining  obligation with respect to its investment in
Paradise  Associates,  L.P. (Paradise  Foothills),  in the form of a nonrecourse
purchase money note, has a principal  balance of $230,000 plus accrued  interest
of $1,083,579 as of March 31, 2005, and 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  March 31,  2005 and
December 31, 2004;  accrued  interest  payable thereon was $75,400 at both March
31, 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 three month period ended March 31, 2005,  existing cash  resources  were
adequate  to support  operating  cash  requirements.  Cash and cash  equivalents
decreased $86,107 during the three month period ended March 31, 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's net loss decreased from the corresponding period in 2004,
primarily  due to an  increase in interest  revenue and gain on  disposition  of
investment  in  partnership  and  decreases  in  interest  expense,  general and
administrative expenses and professional fees, partially offset by a decrease in
share of income from partnerships. Interest revenue increased due to higher cash
and cash  equivalent  balances,  and  higher  interest  rates in 2005.  Interest
expense  decreased  due to lower  purchase  money  note  balances,  general  and
administrative  expenses  decreased  primarily due to lower  reimbursed  payroll
costs in 2005, and professional fees decreased due to lower legal expenses. Gain
on disposition of investment in partnership increased due to additional proceeds
received from the 2004 sale of Semper Village. Share of income from partnerships
decreased  primarily due to lower rental income at one property  compared to the
first  quarter of 2004,  and also due to the sale of one  property  during  2004
which was accounted for on the equity method.

     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, 2005 and 2004,  did not include  losses of $28,924 and
$100,465 respectively.

                                      -11-

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


     No other  significant  changes in the  Partnership's  operations have taken
place during the three month period ended March 31, 2005.


Item 3. Controls and Procedures


     In  May  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 May 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.


Item 5. Other Information

     There has not been any information  required to be disclosed in a report on
Form 8-K during the quarter ended March 31, 2005,  but not reported,  whether or
not otherwise required by this Form10-QSB at March 31, 2005.

     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.

                                      -12-

<PAGE>
Part II. OTHER INFORMATION
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



May 4, 2005                            by: /s/ Michael J. Tuszka
-----------                                -------------------------------------
DATE                                       Michael J. Tuszka
                                             Vice President
                                             and Chief Accounting Officer
                                             (Principal Financial Officer
                                             and Principal Accounting Officer)

                                      -14-

<PAGE>