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

                          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 September 30, 2005


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



                         Commission file number 0-23766


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


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



        Internal Revenue Service - Employer Identification No. 52-1388957

                 11200 Rockville Pike, Rockville, Maryland 20852

                                 (301) 468-9200


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





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





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



                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                              INDEX TO FORM 10-QSB

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2005



                                                                          Page


Part I - FINANCIAL INFORMATION

Item 1.  Financial Statements

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

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

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

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

Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations...................................... 11

Item 3.  Controls and Procedures.......................................... 13


Part II - OTHER INFORMATION

Item 3.  Defaults Upon Senior Securities.................................. 14

Item 5.  Other Information................................................ 14

Item 6.  Exhibits......................................................... 14

Signature................................................................. 15

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


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                                 BALANCE SHEETS

                                     ASSETS
<TABLE>
<CAPTION>
                                                                                      September 30,   December 31,
                                                                                          2005           2004
                                                                                      -------------   ------------
                                                                                       (Unaudited)
<S>                                                                                   <C>             <C>

Investments in partnerships held for sale .........................................   $    612,391    $    617,151
Cash and cash equivalents .........................................................      4,534,738       4,665,352
Other assets ......................................................................            416             173
                                                                                      ------------    ------------

      Total assets ................................................................   $  5,147,545    $  5,282,676
                                                                                      ============    ============



                        LIABILITIES AND PARTNERS' CAPITAL


Due on investments in partnerships ................................................   $    404,600    $    404,600
Accrued interest payable ..........................................................      1,191,413       1,142,762
Accounts payable and accrued expenses .............................................        111,432          87,804
                                                                                      ------------    ------------

      Total liabilities ...........................................................      1,707,445       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 ............................................................     (4,781,992)     (4,574,582)
                                                                                      ------------    ------------

      Total partners' capital .....................................................      3,440,100       3,647,510
                                                                                      ------------    ------------

      Total liabilities and partners' capital .....................................   $  5,147,545    $  5,282,676
                                                                                      ============    ============

</TABLE>

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

                                       -1-

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


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                            STATEMENTS OF OPERATIONS

                             AND ACCUMULATED LOSSES

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                  For the three months ended      For the nine months ended
                                                         September 30,                   September 30,
                                                 -----------------------------   ----------------------------
                                                     2005             2004           2005            2004
                                                 ------------    -------------   ------------    ------------
<S>                                              <C>             <C>             <C>             <C>
Share of income from partnerships ............   $     15,605    $     11,052    $     32,018    $     52,612
                                                 ------------    ------------    ------------    ------------

Other revenue and expenses:

  Revenue:
    Interest .................................         34,856          23,364          86,998          44,691
                                                 ------------    ------------    ------------    ------------

  Expenses:
    Interest .................................         16,217          15,445          48,651         107,345
    General and administrative ...............         48,480          54,030         147,031         156,218
    Management fee ...........................         24,480          24,480          73,440          73,440
    Professional fees ........................         22,000          18,875          66,000         114,887
                                                 ------------    ------------    ------------    ------------

                                                      111,177         112,830         335,122         451,890
                                                 ------------    ------------    ------------    ------------

      Total other revenue and expenses .......        (76,321)        (89,466)       (248,124)       (407,199)
                                                 ------------    ------------    ------------    ------------

Loss before gain on disposition of investment
  in partnerships ............................        (60,716)        (78,414)       (216,106)       (354,587)

Gain on disposition of investment
  in partnerships ............................          2,781       6,239,225           8,696       8,292,008
                                                 ------------    ------------    ------------    ------------

Net (loss) income ............................        (57,935)      6,160,811        (207,410)      7,937,421

Accumulated losses, beginning of period ......     (4,724,057)    (10,727,171)     (4,574,582)    (12,503,781)
                                                 ------------    ------------    ------------    ------------

Accumulated losses, end of period ............   $ (4,781,992)   $ (4,566,360)   $ (4,781,992)   $ (4,566,360)
                                                 ============    ============    ============    ============



Net (loss) income allocated to
  General Partners (1.51%) ...................   $       (875)   $     93,028    $     (3,132)   $    119,855
                                                 ============    ============    ============    ============

Net (loss) income allocated to
  Initial and Special Limited Partners (2.49%)   $     (1,443)   $    153,404    $     (5,165)   $    197,642
                                                 ============    ============    ============    ============


Net (loss) income allocated to
  BAC Holders (96%) ..........................   $    (55,617)   $  5,914,379    $   (199,113)   $  7,619,924
                                                 ============    ============    ============    ============


Net (loss) income per BAC,
  based on 21,158 BACs outstanding ...........   $      (2.63)   $     279.53    $      (9.41)   $     360.14
                                                 ============    ============    ============    ============

</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 nine months ended
                                                                                        September 30,
                                                                                  -------------------------
                                                                                      2005          2004
                                                                                  -----------   -----------
<S>                                                                               <C>           <C>
Cash flows from operating activities:
  Net (loss) income ..........................................................   $  (207,410)   $ 7,937,421

  Adjustments to reconcile net (loss) income to net cash used in operating
    activities:
    Share of income from partnerships ........................................       (32,018)       (52,612)
    Gain on disposition of investment in partnership .........................        (8,696)    (8,292,008)

    Changes in assets and liabilities:
      Increase in accrued interest receivable on advances to partnerships ....          --          (10,100)
      Increase in other assets ...............................................          (243)          (126)
      Increase in accrued interest payable ...................................        48,651        107,345
      Increase (decrease) in accounts payable and accrued expenses ...........        23,628        (82,462)
                                                                                 -----------    -----------

        Net cash used in operating activities ................................      (176,088)      (392,542)
                                                                                 -----------    -----------

Cash flows from investing activities:
  Proceeds from disposition of investment in partnership .....................         8,696      7,955,407
  Payment of disposition fees to related party ...............................          --       (1,213,362)
  Loans to local managing general partner ....................................          --         (495,749)
  Collection of loans to local managing general partner ......................          --          495,749
  Receipt of distributions from partnerships .................................        36,778        133,588
                                                                                 -----------    -----------

        Net cash provided by investing activities ............................        45,474      6,875,633
                                                                                 -----------    -----------

Cash flows from financing activities:
  Distribution to BAC Holders ................................................          --       (5,289,500)
                                                                                 -----------    -----------

Net (decrease) increase in cash and cash equivalents .........................      (130,614)     1,193,591

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

Cash and cash equivalents, end of period .....................................   $ 4,534,738    $ 4,664,009
                                                                                 ===========    ===========



Supplemental disclosure of cash flow information: Non-cash financing activity:
   Purchase money note principal and accrued interest
    payable assumed by purchaser of
    related investment in partnership ........................................   $      --      $ 1,647,092
                                                                                 ===========    ===========
</TABLE>
                   The accompanying notes are an integral part
                         of these financial statements.

                                       -3-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 2005 and 2004

                                   (Unaudited)


1.   BASIS OF PRESENTATION

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

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

     In December  2003,  the Financial  Accounting  Standards  Board issued FASB
Interpretation  No. 46  (revised  December  2003) (FIN 46-R),  Consolidation  of
Variable  Interest  Entities.  FIN 46-R clarifies the  application of Accounting
Research Bulletin 51, Consolidated  Financial  Statements,  for certain entities
that do not  have  sufficient  equity  at risk for the  entity  to  finance  its
activities without additional  subordinated financial support from other parties
or in which equity  investors do not have the  characteristics  of a controlling
financial interest  ("variable interest  entities").  Variable interest entities
within  the  scope of FIN 46-R  will be  required  to be  consolidated  by their
primary  beneficiary.  The primary  beneficiary of a variable interest entity is
determined  to be the party that  absorbs a majority  of the  entity's  expected
losses,  receives  a  majority  of its  expected  returns,  or both.  The  Local
Partnerships  in which the  Partnership  invested were formed by  individuals or
entities  unrelated  to the  Partnership  or  its  affiliates.  The  Partnership
purchased  limited partner  interests in existing,  operating  partnerships with
unaffiliated  managing  general  partners.  An affiliate of the Managing General
Partner also purchased a general  partner  interest in the majority of the Local
Partnerships.  Neither the Partnership nor the affiliate of the Managing General
Partner  received  development  fees at or near  the  time  of  investment.  The
Managing  General  Partner has  evaluated  the Local  Partnerships  in which the
Partnership  is invested and has  determined  that the equity holders as a group
held  sufficient  equity at risk in the  operating  Local  Partnerships  and the
equity investors have the  characteristics of controlling  financial interest in
accordance  with the  provisions of FIN 46-R. The Managing  General  Partner has
therefore determined that the investments in Local Partnerships are not variable
interest  entities  subject  to  consolidation  by  the  Partnership  under  the
provisions of FIN 46-R.

                                       -4-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 2005 and 2004

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

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

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

     The  Partnership's  remaining  obligation with respect to its investment in
Paradise Associates Limited Partnership (Paradise  Foothills),  in the form of a
nonrecourse  purchase  money note  having a principal  balance of $230,000  plus
accrued interest of $1,116,013 as of September 30, 2005, is payable in full upon
the  earliest  of: (i) sale or  refinancing  of the Local  Partnership's  rental
property;  (ii) payment in full of the Local  Partnership's  permanent  loan; or
(iii)  maturity in 2008.  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. On September 27,
2005, a contract for the sale of the property  owned by Paradise  Foothills  was
signed.  The sale is scheduled to close in the fourth quarter of 2005.  There is
no assurance that a sale of the property will occur.

     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, but the currently  contemplated  sale to an affiliate
of the  noteholders  anticipates  that proceeds will be sufficient to retire the
purchase money note.

     Interest  expense on the  Partnership's  purchase money notes for the three
and nine month  periods  ended  September  30,  2005 was  $16,217  and  $48,651,
respectively,  and $15,445  and  $107,345  for the three and nine  months  ended
September 30, 2004, respectively.  The accrued interest payable on the remaining
purchase  money note of $1,116,013  and  $1,067,362 as of September 30, 2005 and
December 31,  2004,  respectively,  is due on the maturity  date of the purchase
money note or  earlier,  in some  instances,  if (and to the extent of a portion
thereof) the related  Local  Partnership  has  distributable  net cash flow,  as
defined in the relevant Local Partnership agreement.

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

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

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

                                       -5-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 2005 and 2004

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

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

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

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

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

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

     As a subsequent  event,  in October  2005,  the property  related to Willow
Creek II Limited Partnership (Willow Creek II) was sold. The sale will result in
net  gain on  disposition  of  investment  in  partnerships  of  $2,182,314  for
financial  statement  purposes and a total gain of $3,764,080 for federal income
tax purposes in 2005. The Local Managing  General Partner has withheld  reserves
in the amount of $315,702.  The funds are being held for additional  liabilities
of the Local  Partnership.  The  Partnership  may  receive  additional  proceeds
related to the net  reserve.  In  accordance  with the terms of the  Partnership
Agreement,  in  October  2005,  the  Managing  General  Partner  will  be paid a
disposition fee of $275,000  related to the sale. The fee will be netted against
the related gain on disposition of investment in partnerships.

     The  Partnership's  basis  in the  Local  Partnership,  along  with the net
unamortized  amount of  acquisition  fees and  property  purchase  costs,  which
totaled  $612,391  and  $617,151 at  September  30, 2005 and  December 31, 2004,
respectively, has been reclassified to investments in partnerships held for sale
in the accompanying balance sheets.

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

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

     On December 19, 2003, the Local Partnership entered into a contract to sell
the property owned by Sheridan West Limited  Partnership  (Semper  Village).  On
July 1,  2004,  the  property  related  to Semper  Village  was  sold.  Net cash
proceeds,  including  a  $14,923  Local  Partnership  reserve  received  by  the
Partnership  and  additional  proceeds  received in the fourth  quarter of 2004,
totaled  $6,334,534.  The sale resulted in net gain on disposition of investment
in partnerships of $6,291,867 for financial statement purposes and in total gain
of $10,793,171  for federal income tax purposes in 2004. In accordance  with the
terms of the Partnership  Agreement,  in July 2004 the Managing  General Partner
was paid a disposition  fee of $706,250  related to the sale. The fee was netted
against the related gain on  disposition of investment in  partnerships.  During
the first three quarters of 2005, the Partnership  received  additional proceeds
of $8,696 related to the sale, resulting in gain on disposition of investment in
partnership of $8,696 for financial statement purposes in 2005.

                                       -6-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 2005 and 2004

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

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

     Combined  statements of operations for the two Local  Partnerships in which
the  Partnership  was invested as of September 30, 2005 and 2004,  respectively,
follow.  The  combined  statements  of  operations  for the three and nine month
periods ended September 30, 2004, include information for The Pointe through the
date of sale of the  Partnership's  interest in June 2004 and for Semper Village
through  the date of sale of the  property  owned by to Semper  Village  in July
2004. The combined  statements have been compiled from  information  supplied by
the management  agents of the properties and are unaudited.  The information for
each of the periods is presented  separately for those Local  Partnerships  that
have investment basis (equity  method),  and for those Local  Partnerships  that
have cumulative losses in excess of the amount of the  Partnership's  investment
in those  Local  Partnerships  (equity  method  suspended).  Appended  after the
combined statements is information  concerning the Partnership's share of income
from Local Partnerships.

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

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

         Revenue:
           Rental                                 $  277,459       $  269,393       $  268,439      $  272,691
           Other                                      12,007           23,969           11,756          24,684
                                                  ----------       ----------       ----------      ----------

             Total revenue                           289,466          293,362          280,195         297,375
                                                  ----------       ----------       ----------      ----------

         Expenses:
           Operating                                 176,126          156,457          168,939         156,481
           Interest                                   43,776           97,839           45,395         121,077
           Depreciation and amortization              53,800           68,285           54,696          92,518
                                                  ----------       ----------       ----------      ----------

             Total expenses                          273,702          322,581          269,030         370,076
                                                  ----------       ----------       ----------      ----------

         Net income (loss)                        $   15,764       $  (29,219)      $   11,165      $  (72,701)
                                                  ==========       ==========       ==========      ==========

         Cash Distributions                       $   36,778       $       --       $       --      $       --
                                                  ==========       ==========       ==========      ==========

         Cash distributions recorded as
           reduction of investment in
           partnerships                           $   36,778       $       --       $       --      $       --
                                                  ==========       ==========       ==========      ==========


         Partnership's share of Local
           Partnership net (loss) income          $   15,605       $       --       $   11,052      $       --
                                                  ---------------------------       --------------------------
         Share of (loss) income
             from partnerships                              $15,605                          $11,052
                                                            =======                          =======
</TABLE>

                                       -7-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 2005 and 2004

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

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

         Revenue:
           Rental                                 $  812,737       $  808,179       $  826,613      $2,452,471
           Other                                      28,532           71,906           29,540         200,313
                                                  ----------       ----------       ----------      ----------

             Total revenue                           841,269          880,085          856,153       2,652,784
                                                  ----------       ----------       ----------      ----------

         Expenses:
           Operating                                 516,196          469,371          492,526       1,497,539
           Interest                                  131,328          293,516          136,187         796,579
           Depreciation and amortization             161,401          204,856          164,088         617,981
                                                  ----------       ----------       ----------      ----------

             Total expenses                          808,925          967,743          792,801       2,912,099
                                                  ----------       ----------       ----------      ----------

         Net income (loss)                        $   32,344       $  (87,658)      $   63,352      $ (259,315)
                                                  ==========       ==========       ==========      ==========

         Cash Distributions                       $   36,778       $       --       $  133,588      $       --
                                                  ==========       ==========       ==========      ==========

         Cash distributions recorded as
           reduction of investment in
           partnerships                           $   36,778       $       --       $  133,588      $       --
                                                  ==========       ==========       ==========      ==========


         Partnership's share of Local
           Partnership net income                 $   32,018       $       --       $   62,712      $       --


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

         Share of income from partnerships                  $32,018                            $52,612
                                                            =======                            =======

</TABLE>

     Cash  distributions  received from Local  Partnerships that have investment
basis (equity method) are recorded as a reduction of investments in partnerships
and as cash  receipts  on the  respective  balance  sheets.  Cash  distributions
received from Local  Partnerships  that have cumulative  losses in excess of the
amount of the  Partnership's  investments  in those Local  Partnerships  (equity
method  suspended)  are  recorded  as share of income from  partnerships  on the
respective  statements  of  operations  and as cash  receipts on the  respective
balance sheets.  As of September 30, 2005 and 2004, the  Partnership's  share of
cumulative losses to date for one Local Partnership,  respectively, exceeded the
amount  of  the  Partnership's   investments  in  and  advances  to  that  Local
Partnership by $6,006,255 and $6,019,683,  respectively.  As the Partnership has
no further  obligation  to  advance  funds or  provide  financing  to this Local
Partnership,  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 $21,620 and
$75,311  for the  three  and  nine  month  periods  ended  September  30,  2005,
respectively,  and $46,947  and  $128,147  for the three and nine month  periods
ended  September  30, 2004,  respectively,  to the Managing  General  Partner as
direct  reimbursement of expenses  incurred on behalf of the  Partnership.  Such
expenses are included in the  accompanying  statements  of operations as general
and administrative expenses.

                                       -8-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 2005 and 2004

                                   (Unaudited)


3.   RELATED PARTY TRANSACTIONS - Continued

     In accordance with the terms of the Partnership Agreement,  the Partnership
is obligated to pay the Managing General Partner an annual incentive  management
fee  (Management  Fee) after all other expenses of the Partnership are paid. The
Partnership  paid the Managing  General  Partner a Management Fee of $24,480 for
each of the three month periods ended  September 30, 2005 and 2004,  and $73,440
for each of the nine month periods ended September 30, 2005 and 2004.

     In  accordance  with the  terms of a  Definitive  Proxy  Statement  for the
Liquidation  and Dissolution of the Partnership  (Definitive  Proxy  Statement),
which has been  approved by a majority of the  outstanding  Beneficial  Assignee
Certificates  ("BACs")  representing  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. In October 2005, the Managing General
Partner will be paid a disposition fee of $275,000 related to the sale of Willow
Creek II,  which will be netted  against  the  related  gain on  disposition  of
investment in partnerships.

     CRI, William B. Dockser and H. William  Willoughby are three of the General
Partners of the Partnership.  In connection with a proxy seeking the liquidation
of the Partnership, in January 2003, one Limited Partner filed a purported class
action and  derivative  lawsuit  against these three General  Partners  alleging
certain  deficiencies in the Definitive Proxy Statement.  After various motions,
cross motions,  and appeals, on February 19, 2004, the U.S. Court of Appeals for
the Fourth Circuit granted the Partnership's motion to dismiss, and the case has
been closed. The Partnership Agreement contains provisions pursuant to which the
General  Partners  may seek  indemnification  for  their  costs,  including  the
requirement  that they obtain an opinion of independent  counsel that the matter
is subject to  indemnification.  The required opinion of independent counsel was
received  during the second  quarter of 2004,  at which time a total of $138,933
was reimbursed to these 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>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 2005 and 2004

                                   (Unaudited)


4.   DISTRIBUTION TO BAC HOLDERS

     On August 31, 2004, the Partnership made a cash  distribution of $5,289,500
($250  per BAC  unit) to BAC  holders  of  record  as of  August  1,  2004.  The
distribution  consisted of proceeds  received from the sale of the Partnership's
interest in the Pointe in June 2004,  and from the sale of the property owned by
Semper Village in July 2004.


5. SUBSEQUENT EVENT

     In October 2005, the property related to Willow Creek II was sold. See Note
2.c. Other  Partnership  matters in Part I Item 1 for information  regarding the
sale.

                                      # # #

                                      -10-

<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  Local
Partnerships  in which the  Partnership  invested were formed by  individuals or
entities  unrelated  to the  Partnership  or  its  affiliates.  The  Partnership
purchased  limited partner  interests in existing,  operating  partnerships with
unaffiliated  managing  general  partners.  An affiliate of the Managing General
Partner also purchased a general  partner  interest in the majority of the Local
Partnerships.  Neither the Partnership nor the affiliate of the Managing General
Partner  received  development  fees at or near  the  time  of  investment.  The
Managing  General  Partner has  evaluated  the Local  Partnerships  in which the
Partnership  is invested and has  determined  that the equity holders as a group
held  sufficient  equity at risk in the  operating  Local  Partnerships  and the
equity investors have the  characteristics of controlling  financial interest in
accordance  with the  provisions of FIN 46-R. The Managing  General  Partner has
therefore determined that the investments in Local Partnerships 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 $4,534,738
as of  September  30,  2005,  is expected to be adequate to meet its current and
anticipated operating cash needs. As of November 8, 2005, there were no material
commitments for capital  expenditures.  The Managing  General Partner  currently
intends to retain all of the Partnership's  remaining undistributed cash for its
Plan of Liquidation and for operating cash reserves.

                                      -11-

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


     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 $1,116,013 as of September 30, 2005, is payable in full upon
the  earliest  of: (i) sale or  refinancing  of the Local  Partnership's  rental
property;  (ii) payment in full of the Local  Partnership's  permanent  loan; or
(iii)  maturity in 2008.  See the notes to financial  statements  for additional
information concerning this purchase money note.

     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, but the currently  contemplated  sale to an affiliate
of the  noteholders  anticipates  that proceeds will be sufficient to retire the
purchase money note.

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

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

     The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient  cash is available for operating  requirements.
For the nine month period ended September 30, 2005,  existing cash resources and
the  receipt of a  distribution  from one Local  Partnership  were  adequate  to
support  operating  cash  requirements.  Cash  and  cash  equivalents  decreased
$130,614 during the nine month period ended September 30, 2005, primarily due to
operating expenses paid in cash.

     On August 31, 2004, the Partnership made a cash  distribution of $5,289,500
($250  per BAC  unit) to BAC  holders  of  record  as of  August  1,  2004.  The
distribution  consisted of proceeds  received from the sale of the Partnership's
interest in the Pointe in June 2004,  and from the sale of the property owned by
Semper Village in July 2004.

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

     The  Partnership  recognized  net loss for the  three  month  period  ended
September 30, 2005, compared to net income for the corresponding period in 2004,
primarily due to a decrease in gain on disposition of investment in partnerships
related to the sales of the  Partnership's  interest  in The Pointe in June 2004
and the property  related to Semper  Village in July 2004.  Contributing  to net
loss were increases in interest expense and professional fees,  partially offset
by increases  in share of income from  partnerships  and interest  revenue and a
decrease in general and administrative expenses.  Interest expense increased due
to  the   compounding  of  interest  on  the  remaining   purchase  money  note.
Professional  fees increased in 2005 primarily due to higher audit costs.  Share
of income from  partnerships  increased  primarily due to higher rental  income,
partially offset by higher operating expenses at one property.  Interest revenue
increased  due to higher  rates in 2005.  General  and  administrative  expenses
decreased  primarily due to lower  reimbursed  payroll costs and lower  printing
fees in 2005.

                                      -12-

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


     The  Partnership  recognized  net  loss  for the nine  month  period  ended
September 30, 2005, compared to net income for the corresponding period in 2004,
primarily due to a decrease in gain on disposition of investment in partnerships
as discussed  above.  Contributing to net loss was a decrease in share of income
from  partnerships  primarily due to a decrease in rental income and an increase
in operating  expenses at one property.  Offsetting net loss were an increase in
interest revenue, as discussed above, and decreases in interest expense, general
and administrative expenses and professional fees. Interest expense decreased in
2005 due to a lower  purchase  money note  balance.  General and  administrative
expenses decreased as discussed above. Professional fees decreased primarily due
to the dismissal of a law suit in 2004,  partially  offset by higher audit costs
in 2005.

     For financial reporting purposes, the Partnership,  as a limited partner in
the Local  Partnerships,  does not record losses from the Local  Partnerships in
excess of its  investment  to the  extent  that the  Partnership  has no further
obligation to advance funds or provide financing to the Local Partnerships. As a
result,  the  Partnership's  share of income from partnerships for the three and
nine month periods ended  September 30, 2005,  did not include losses of $28,924
and $86,773  respectively,  compared to excluded  losses of $14,969 and $215,899
for the three and nine month periods ended September 30, 2004, respectively.

     In October 2005,  the property  owned by Willow Creek II was sold. See Note
2.c. Other  Partnership  matters in Part I Item 1 for information  regarding the
sale.

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


Item 3. Controls and Procedures

     In October 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  October  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.

                                      -13-

<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 one
purchase money note.


Item 5. Other Information

     a.   There  has not been any  information  required  to be  disclosed  in a
          report on Form 8-K during the quarter ended  September  30, 2005,  but
          not reported, whether or not otherwise required by this Form 10-QSB at
          September 30, 2005.

     b.   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.

                                Cash Distribution
                                -----------------

     On August 31, 2004, the Partnership made a cash  distribution of $5,289,500
($250  per BAC  unit) to BAC  holders  of  record  as of  August  1,  2004.  The
distribution  consisted of proceeds  received from the sale of the Partnership's
interest in the Pointe in June 2004,  and from the sale of the property owned by
Semper Village in July 2004.


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.

                                      -14-

<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



November 8, 2005                       by: /s/ H. William Willoughby
----------------                           -------------------------------------
DATE                                       H. William Willoughby,
                                             Director, President, Secretary,
                                             Principal Financial Officer,
                                             and Principal Account Officer





                                      -15-