<PAGE>
                                   FORM 10-QSB
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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


For the quarterly period ended     June 30, 1998
                                   -------------

Commission file number                0-23766
                                   --------------


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
   --------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)



          Maryland                                      52-1388957
------------------------------------              ------------------------
(State or other jurisdiction of                   (I.R.S. Employer
incorporation or organization)                    Identification No.)



11200 Rockville Pike, Rockville, Maryland                 20852
-----------------------------------------         ------------------------
(Address of principal executive offices)                (Zip Code)



                                 (301) 468-9200
   --------------------------------------------------------------------------
                (Issuer's telephone number, including area code)


     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, and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X]   No [ ]   

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:


     Not applicable                            Not applicable
--------------------------         ---------------------------------------
        (Class)                       (Outstanding at June 30, 1998)
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                              INDEX TO FORM 10-QSB

                       FOR THE QUARTER ENDED JUNE 30, 1998



                                                                 Page
                                                                 ----

PART I.   Financial Information (Unaudited)

Item 1.   Financial Statements

          Consolidated Balance Sheets - June 30, 1998 and
            December 31, 1997 . . . . . . . . . . . . . . . .        1

          Consolidated Statements of Operations - for the
            three and six months ended June 30, 1998 and 1997        2

          Consolidated Statements of Cash Flows - for the
            six months ended June 30, 1998 and 1997 . . . . .        3

          Notes to Consolidated Financial Statements  . . . .        4

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

PART II.  Other Information

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

Item 6.   Exhibits and Reports on Form 8-K  . . . . . . . . .       14

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

Exhibit Index   . . . . . . . . . . . . . . . . . . . . . . .       16
<PAGE>
PART I.   FINANCIAL INFORMATION
          ---------------------
ITEM 1.   FINANCIAL STATEMENTS
          --------------------

                  CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                            CONSOLIDATED BALANCE SHEETS

                                      ASSETS

<TABLE>
<CAPTION>
                                                                                                 June 30,       December 31,
                                                                                                   1998            1997
                                                                                               -------------    ------------
                                                                                                (Unaudited)
<S>                                                                                            <C>              <C>
Investments in and advances to partnerships                                                    $     310,187    $     612,145
Assets held for sale                                                                                 304,416               -- 
Cash and cash equivalents                                                                          1,939,503        1,798,455
Acquisition fees, principally paid to related parties, net of
  accumulated amortization of $95,039 and $117,156, respectively                                     136,316          180,745
Property purchase costs, net of accumulated amortization of
  $86,984 and $117,875, respectively                                                                 121,777          176,813
Other assets                                                                                           5,834            5,900
                                                                                               -------------    -------------

      Total assets                                                                             $   2,818,033    $   2,774,058
                                                                                               =============    =============


                        LIABILITIES AND PARTNERS' DEFICIT

Due on investments in partnerships                                                             $  2,522,600     $   2,522,600
Accrued interest payable                                                                          5,941,632         5,495,200
Accounts payable and accrued expenses                                                                62,269            56,987
                                                                                               -------------    -------------
      Total liabilities                                                                           8,526,501         8,074,787
                                                                                               -------------    -------------
Commitments and contingencies

Partners' capital (deficit):

  Capital paid in:
    General Partners                                                                                   2,000            2,000
    Limited Partners                                                                              21,202,500       21,202,500
                                                                                               -------------    -------------
                                                                                                  21,204,500       21,204,500

  Less:
    Offering costs                                                                                (2,570,535)      (2,570,535)
    Accumulated losses                                                                           (24,342,433)     (23,934,694)
                                                                                               -------------    -------------
      Total partners' deficit                                                                     (5,708,468)      (5,300,729)
                                                                                               -------------    -------------

      Total liabilities and partners' deficit                                                  $   2,818,033    $   2,774,058
                                                                                               =============    =============
</TABLE>

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

                                      - 1 -
<PAGE>
PART I.   FINANCIAL INFORMATION
          ---------------------
ITEM 1.   FINANCIAL STATEMENTS
          --------------------

                    CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                        CONSOLIDATED STATEMENTS OF OPERATIONS

                                    (Unaudited)
<TABLE>
<CAPTION>
                                                                  For the three months ended       For the six months ended
                                                                           June 30,                         June 30,
                                                                 ----------------------------    ----------------------------
                                                                     1998            1997            1998            1997
                                                                 ------------    ------------    ------------    ------------
<S>                                                              <C>             <C>             <C>             <C>
Share of income from partnerships                                $     96,142    $    242,062    $    128,699    $    293,085
                                                                 ------------    ------------    ------------    ------------
Other revenue and expenses:

  Revenue:
    Interest and other income                                          30,363          32,464          58,380          90,692
                                                                 ------------    ------------    ------------    ------------
  Expenses:
    Interest                                                          223,216         223,216         446,432         463,506
    General and administrative                                         28,916          14,923          57,166          53,159
    Management fee                                                     24,483          24,483          48,965          48,965
    Professional fees                                                  10,852          19,170          32,379          34,955
    Amortization                                                        4,938           4,938           9,876           9,877
                                                                 ------------    ------------    ------------    ------------
                                                                      292,405         286,730         594,818         610,462
                                                                 ------------    ------------    ------------    ------------
       Total other revenue and expenses                              (262,042)       (254,266)       (536,438)       (519,770)
                                                                 ------------    ------------    ------------    ------------

Net loss before extraordinary gain on disposition
  of investment in partnership or forgiveness
  of accrued interest                                                (165,900)       (12,204)        (407,739)       (226,685)

Extraordinary gain on disposition of investment
  in partnership or forgiveness of accrued interest                        --              --              --       2,727,260
                                                                 ------------    ------------    ------------    ------------
Net (loss) income                                                    (165,900)        (12,204)       (407,739)      2,500,575

Accumulated losses, beginning of period                           (24,176,533)    (26,649,956)    (23,934,694)    (26,162,735)
                                                                 ------------    ------------    ------------    ------------
Accumulated losses, end of period                                $(24,342,433)   $(26,662,160)   $(24,342,433)   $(23,662,160)
                                                                 ============    ============    ============    ============
(Loss) income allocated to General Partners (1.51%)              $     (2,505)   $       (184)   $     (6,157)   $     37,759
                                                                 ============    ============    ============    ============
(Loss) income allocated to Initial and Special
  Limited Partners (2.49%)                                       $     (4,131)   $       (304)   $    (10,153)   $     62,264
                                                                 ============    ============    ============    ============
(Loss) income allocated to BAC Holders (96%)                     $   (159,264)   $    (11,716)   $   (391,429)   $  2,400,552
                                                                 ============    ============    ============    ============
(Loss) income per BAC based on 21,195 outstanding                $      (7.51)   $      (0.55)   $     (18.47)   $     113.26
                                                                 ============    ============    ============    ============
</TABLE>

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

                                    - 2 -
<PAGE>
PART I.   FINANCIAL INFORMATION
          ---------------------
ITEM 1.   FINANCIAL STATEMENTS
          --------------------

                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                                                    For the six months ended
                                                                                                            June 30,
                                                                                                  ----------------------------
                                                                                                      1998            1997
                                                                                                  ------------    ------------
<S>                                                                                               <C>             <C>
Cash flows from operating activities:
  Net (loss) income                                                                               $   (407,739)   $  2,500,575

  Adjustments to reconcile net income to net cash used in operating
    activities:
    Share of income from partnerships                                                                 (128,699)       (293,085)
    Increase in accrued interest receivable on advances to
      partnerships                                                                                     (11,813)        (11,812)
    Amortization of deferred costs                                                                       9,876           9,877
    Payment of purchase money note interest                                                                 --        (122,888)
    Extraordinary gain on disposition of investment in partnership                                          --      (2,727,260)

    Changes in assets and liabilities:
      Decrease (increase) in other assets                                                                   66          (6,532)
      Increase in accrued interest payable                                                             446,432         463,506
      Increase in accounts payable and accrued expenses                                                  5,282          16,453
                                                                                                  ------------    ------------
         Net cash used in operating activities                                                         (86,595)       (171,166)
                                                                                                  ------------    ------------
Cash flows from investing activities:
  Receipt of distributions from partnerships                                                           189,294         565,283
  Repayment of advances from partnerships                                                               38,349             --
                                                                                                  ------------    ------------
         Net cash provided by investing activities                                                     227,643         565,283
                                                                                                  ------------    ------------

Net increase in cash and cash equivalents                                                              141,048         394,117

Cash and cash equivalents, beginning of period                                                       1,798,455       1,266,939
                                                                                                  ------------    ------------

                                                                                                  $  1,939,503    $  1,661,056
Cash and cash equivalents, end of period                                                          ============    ============



Supplemental disclosure of cash flow information:
  Cash paid during the period for interest                                                        $         --    $    122,888
                                                                                                  ============    ============
</TABLE>

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

                                     - 3 -
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Unaudited)

1.   BASIS OF PRESENTATION

     In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited financial statements reflect all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of the financial
position of Capital Realty Investors-85 Limited Partnership (the Partnership) as
of June 30, 1998, and the results of its operations and its cash flows for the
three and six months ended June 30, 1998 and 1997.  The results of operations
for the interim period ended June 30, 1998, are not necessarily indicative of
the results to be expected for the full year.

     The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles and with the
instructions to Form 10-QSB.  Certain information and accounting policies and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles 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-K at December 31, 1997.

     Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

     The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having a principal balance of
$2,348,000 plus accrued interest of $5,866,232 as of June 30, 1998, are payable
in full upon the earliest of: (1) sale or refinancing of the respective Local
Partnership's rental property; (2) payment in full of the respective Local
Partnership's permanent loan; or (3) maturity.  A purchase money note in the
principal amount of $230,000 matured on January 30, 1996 but has not been paid
or extended.  Purchase money notes having a principal balance of $250,000 and
$1,250,000 matured on January 1, 1997 and February 1, 1997, respectively, and
the Partnership's obligation with respect to these notes has been satisfied. 
The remaining purchase money notes mature from 2001 to 2003. 

     The purchase money notes are generally secured by the Partnership's
interest in the respective Local Partnerships.  There is no assurance that the
underlying properties will have sufficient appreciation and equity to enable the
Partnership to pay the purchase money notes' principal and accrued interest when
due.  If a purchase money note is not paid in accordance with its terms, the
Partnership will either have to renegotiate the terms of repayment or risk
losing its partnership interest in the Local Partnership.  The Partnership's
inability to pay certain of the purchase money note principal and accrued
interest balances when due, and the resulting uncertainty regarding the
Partnership's continued ownership interest in the related Local Partnerships,
does not impact the Partnership's financial condition because the purchase money
notes are nonrecourse and secured solely by the Partnership's interest in the
related Local Partnerships.  Therefore, should the investment in any of the
Local Partnerships with maturing purchase money notes not produce sufficient
value to satisfy the related purchase money notes, the Partnership's exposure to
loss is limited because the amount of the nonrecourse indebtedness of each of




                                       -4-
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

the maturing purchase money notes exceeds the carrying amount of the investment
in and advances to the related Local Partnerships.  Thus, even a complete loss
of one of these Local Partnerships would not have a material impact on the
financial condition of the Partnership.

     Interest expense on the Partnership's purchase money notes for the three
and six months ended June 30, 1998 was $223,216 and $446,432, respectively, and
$223,216 and $463,506 for the three and six months ended June 30, 1997,
respectively.  The accrued interest on the purchase money notes of $5,866,232
and $5,419,800 as of June 30, 1998 and December 31, 1997, respectively, is due
on the respective maturity dates of the purchase money notes or earlier, in some
instances, if the pertinent Local Partnership has distributable net cash flow,
as defined in the relevant Local Partnership agreements.

                                    Deerfield
                                    ---------

     Deerfield Partners Limited Partnership (Deerfield) was unable to generate
sufficient cash flow to pay its debt service and therefore was unable to meet
its obligations under the terms of its mortgage loan.  The Local Partnership
defaulted on its mortgage loan in 1990.  On November 16, 1995, the Local
Partnership received a notice of default, acceleration and assignment of rents
from the mortgagee.  On February, 27, 1996, Deerfield entered into a term sheet
agreement with the mortgagee pursuant to which Deerfield transferred management
of the property to the mortgagee on April 1, 1996 and agreed, at the mortgagee's
election, to either voluntarily transfer ownership of the property to the
mortgagee, or not oppose a foreclosure action, occurring no earlier than January
6, 1997, without further consideration, if the mortgage loan default had not
been cured by that date.  On January 7, 1997, in accordance with the term sheet
agreement, the mortgagee foreclosed on the property.

     The Partnership defaulted on its purchase money notes relating to Deerfield
when the notes matured on January 1, 1997 and were not paid.  The default amount
included principal and accrued interest of $250,000 and $623,068, respectively. 
Since the purchase money notes were nonrecourse and secured solely by the
Partnership's interest in the related Local Partnership, the Partnership's
obligation regarding the purchase money notes was retired in conjunction with
the transfer of ownership in Deerfield to the mortgagee, as discussed above. 
The Partnership's investment in Deerfield had previously been reduced to zero as
a result of losses from the Local Partnership during prior years.  Acquisition
fees and property purchase costs relating to Deerfield were previously fully
amortized in order to record the investment at its net realizable value.  As a
result of the foreclosure on the Deerfield property, the Partnership's purchase
money note obligation was forgiven and resulted in a net financial statement
gain of approximately $875,000.  The federal tax gain was approximately $2.4
million.

                           Devonshire and Springfield
                           --------------------------

     During June 1998, the local managing general partners of Devonshire
Development Limited Partnership (Devonshire) and Springfield Properties Limited
Partnership (Springfield) received offers from third parties to purchase the
respective properties.  The local managing general partners of Devonshire and

                                       -5-
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

Springfield have entered into contracts to sell the respective properties to a
real estate investment trust (REIT) (in the case of Springfield) and the REIT's
affiliate (in the case of Devonshire) on or before January 15, 1999.  The
contracts are subject to normal and customary conditions.  For example, each
contract is contingent upon the respective purchaser's satisfaction with the
results of its due diligence inspection and can be terminated by the purchaser
within approximately forty-five days from the date of the contract.  In
addition, each contract provides that the seller's obligation to close
thereunder is contingent upon the closing of the other sale.  Further, since
both properties are presently encumbered by loans that cannot yet be prepaid,
both contracts are also contingent upon the lender's consent to the purchasers'
assumptions of the respective loans.  There is no assurance that sales of these
properties will occur.  In the event of sales of both properties, the
Partnership's investment in and advances to partnerships would be reduced
accordingly.  Of the six Local Partnerships in which the Partnership had
invested as of June 30, 1998 and December 31, 1997, these two Local Partnerships
represented approximately 50% and 18%, respectively, of the total investment in
and advances to partnerships.  For the six months ended June 30, 1998 and 1997,
distributions from these two Local Partnerships represented approximately 20%
and 46%, respectively of total distributions from Local Partnerships.  The
Partnership's share of income from these Local Partnerships was $96,012 and
$110,469 for the three and six months ended June 30, 1998, respectively, and
$148,128 and $20,227 for the three and six months ended June 30, 1997,
respectively.

     Due to the impending and likely sales of the properties related to the
Partnership's investment in Devonshire and Springfield, the Partnership's bases
in these two Local Partnerships, which were $34,344 for Devonshire and $270,072
for Springfield, have been reclassified as assets held for sale in the
accompanying balance sheet at June 30, 1998.  

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

     The Partnership defaulted on its purchase money note relating to Paradise
Associates, L.P. (Paradise Foothills) when the note matured on January 30, 1996
and was not paid.  The default amount included principal and accrued interest of
$230,000 and $371,464, respectively.  As of August 7, 1998, principal and
accrued interest totaling $230,000 and $527,976, respectively, were due.  The
Managing General Partner made an offer for a nine-year extension, and as of
August 7, 1998, the Managing General Partner is awaiting a response from the
purchase money noteholder.  There is no assurance that the Managing General
Partner will reach an agreement of any kind with the noteholder.  Additionally,
the holder of the loan secured by the mortgage on Paradise Foothills has
attempted to terminate the provisional workout agreement related to the
property.  The Managing General Partner is disputing the purported termination,
and since July, 1997, has not received any response from the mortgagee.  Should
the purchase money noteholder or the mortgagee begin foreclosure proceedings,
the Managing General Partner intends to vigorously contest such action(s). 
However, there can be no assurance that the Partnership will be able to retain
its interest in the Local Partnership.  The uncertainty regarding the continued
ownership of the Partnership's interest in the related Local Partnership does
not impact the Partnership's financial condition, as discussed above.


                                       -6-
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

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

     Mesa Partners Limited Partnership (The Pointe), located in El Paso, Texas,
modified its mortgage loan in 1987.  In connection with the loan modification,
the Partnership loaned $262,500 to the Local Partnership in 1987.  Repayment of
this loan, with simple interest at 9% per annum, is expected to occur upon sale
or refinancing of the property.  As of June 30, 1998 and December 31, 1997,
accrued interest was $257,626 and $245,813, respectively.  Currently, the local
managing general partner is investigating the possibility of either refinancing
the Local Partnership's mortgage loan or selling the property.  There is no
assurance that a refinancing or a sale will occur.

                                   River Place
                                   -----------

     Purchase money notes relating to River Place, Ltd. (River Place) totaling
$2,500,000 plus accrued interest were originally scheduled to mature on December
31, 1995.  On December 27, 1995, the Managing General Partner entered into an
agreement with the noteholders which granted the noteholders three options to
purchase the Partnership's 98.99% limited partnership interest in River Place
over a two-year period.  Purchase money note interest of $821,528, which accrued
during 1995, was forgiven by the noteholders as part of the agreement.  During
1995 and 1996, the noteholders purchased a 9.9% and 39.6%, respectively,
interest in River Place from the Partnership in exchange for the forgiveness of
purchase money note principal and interest aggregating $1,250,000 and
$1,967,568, respectively.  

     On February 18, 1997, certain of the noteholders holding notes with an
outstanding principal and accrued interest balance of $650,000 and $1,348,641,
respectively, foreclosed on 25.73% of the Partnership's remaining 49.49%
interest in River Place, resulting in a net financial statement gain of
approximately $1.4 million, and a federal tax gain of approximately $1.9 million
in 1997.  On February 21, 1997, certain of the noteholders purchased the
Partnership's remaining 23.76% interest in River Place from the Partnership in
exchange for the forgiveness of purchase money note principal and accrued
interest of $600,000 and $434,616, respectively, resulting in a net financial
statement gain of approximately $468,000, and a federal tax gain of
approximately $900,000 in 1997.  As a result of the noteholders' purchase of the
Partnership's remaining interest in River Place, the Partnership no longer has
an ownership interest in the Local Partnership.  In accordance with the purchase
option agreement, CRHC, Inc., an affiliate of the Managing General Partner,
transferred its .01% general partner interest in River Place to the noteholders
and/or their assignees.  Pursuant to the agreement, the noteholders or an
affiliate paid a fee into escrow to the Partnership of $35,000.  This fee, and
interest accrued thereon totaling $1,353, were released to the Partnership in
accordance with the purchase option agreement, on March 17, 1997.








                                       -7-
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

                           Combined Local Partnerships
                           ---------------------------

     The following are combined statements of operations for the Local
Partnerships in which the Partnership had invested as of June 30, 1998 and 1997,
respectively.  The 1997 results include River Place and Deerfield through the
respective dates of sale and foreclosure.  The statements have been compiled
from information supplied by the management agents of the projects and are
unaudited.














































                                       -8-
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

                       COMBINED STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                             For the three months ended            For the six months ended
                                                                      June 30,                             June 30,
                                                            -----------------------------       -----------------------------
                                                                1998             1997               1998             1997
                                                            ------------     ------------       ------------     ------------
<S>                                                         <C>              <C>                <C>              <C>
Revenue:
  Rental revenue                                            $  2,026,762     $  1,998,265       $  4,052,611     $  4,156,944
  Other                                                          115,567           99,353            222,954          202,971
                                                            ------------     ------------       ------------     ------------
                                                               2,142,329        2,097,618          4,275,565        4,359,915
                                                            ------------     ------------       ------------     ------------

Expenses:
  Operating                                                    1,020,557          891,349          2,097,095        2,080,770
  Interest                                                       783,072          733,850          1,566,146        1,495,652
  Depreciation and amortization                                  358,856          361,288            717,711          753,620
                                                            ------------     ------------       ------------     ------------
                                                               2,162,485        1,986,487          4,380,952        4,330,042
                                                            ------------     ------------       ------------     ------------
Net (loss) income                                           $    (20,156)    $    111,131       $   (105,387)    $     29,873
                                                            ============     ============       ============     ============

</TABLE>

     As of both June 30, 1998 and December 31, 1997, the Partnership's share of
cumulative losses to date for four of the six Local Partnerships exceeded the
amount of the Partnership's investments in and advances to those Local
Partnerships by $7,756,608 and $7,522,459, 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
consolidated 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 managing the Partnership.  The Partnership paid $21,652 and $43,564 for the
three and six months ended June 30, 1998, respectively and $19,167 and $34,182
for the three and six months ended June 30, 1997, respectively, as direct
reimbursement of expenses incurred on behalf of the Partnership.  Such expenses
are included in the consolidated statements of operations as general and
administrative expenses.  Additionally, in accordance with the terms of the
Partnership Agreement, the Partnership is obligated to pay an annual incentive
management fee (the Management Fee) after all other expenses of the Partnership
are paid.  The Partnership paid the Managing General Partner a Management Fee of

                                    -9-
<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 (Unaudited)

3.   RELATED-PARTY TRANSACTIONS - Continued

$24,483 and $48,965 for the three and six months ended June 30, 1998, and like
amounts for the three and six months ended June 30, 1997.






















































                                      -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 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, terms of
governmental regulations that affect the Partnership and interpretations of
those regulations, the competitive environment in which the Partnership
operates, and the availability of working capital.

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

     The Partnership's liquidity, with unrestricted cash resources of $1,939,503
and $1,798,455 as of June 30, 1998 and December 31, 1997, respectively, along
with future cash distributions from Local Partnerships, is expected to meet its
current and anticipated operating cash needs.  As of August 7, 1998, there are
no material commitments for capital expenditures.

     The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having a principal balance of
$2,348,000 plus accrued interest of $5,866,232 as of June 30, 1998, are payable
in full upon the earliest of: (1) sale or refinancing of the respective Local
Partnership's rental property; (2) payment in full of the respective Local
Partnership's permanent loan; or (3) maturity.  A purchase money note in the
principal amount of $230,000 matured on January 30, 1996 but has not been paid
or extended.  Purchase money notes having a principal balance of $250,000 and
$1,250,000 matured on January 1, 1997 and February 1, 1997, respectively, and
the Partnership's obligation with respect to these notes has been satisfied. 
The remaining purchase money notes mature from 2001 to 2003.  See the notes to
the consolidated financial statements for additional information pertaining to
these purchase money notes.

     The purchase money notes are generally secured by the Partnership's
interest in the respective Local Partnerships.  There is no assurance that the
underlying properties will have sufficient appreciation and equity to enable the
Partnership to pay the purchase money notes' principal and accrued interest when
due.  If a purchase money note is not paid in accordance with its terms, the
Partnership will either have to renegotiate the terms of repayment or risk
losing its partnership interest in the Local Partnership.  The Partnership's
inability to pay certain of the purchase money note principal and accrued
interest balances when due, and the resulting uncertainty regarding the
Partnership's continued ownership interest in the related Local Partnerships,
does not impact the Partnership's financial condition because the purchase money
notes are nonrecourse and secured solely by the Partnership's interest in the
related Local Partnerships.  Therefore, should the investment in any of the
Local Partnerships with maturing purchase money notes not produce sufficient
value to satisfy the related purchase money notes, the Partnership's exposure to
loss is limited because the amount of the nonrecourse indebtedness of each of
the maturing purchase money notes exceeds the carrying amount of the investment
in and advances to the related Local Partnerships.  Thus, even a complete loss
of one of these Local Partnerships would not have a material impact on the
financial condition of the Partnership.


                                      -11-
<PAGE>
PART I.   FINANCIAL INFORMATION
          ---------------------
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          -------------------------------------------------
               CONDITION AND RESULTS OF OPERATIONS - Continued
               -----------------------------------

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

     The Partnership has determined that it is not practicable to estimate the
fair value of the purchase money notes, either individually or in the aggregate,
due to:  (1) the lack of an active market for this type of financial instrument,
(2) the variable nature of purchase money note interest payments as a result of
fluctuating cash flow distributions received from the related Local
Partnerships, and (3) the excessive costs associated with an independent
appraisal of the purchase money notes.

     Included in due on investments in partnerships is $174,600 due to a local
general partner at both June 30, 1998 and December 31, 1997; accrued interest
payable thereon was $75,600 at both June 30, 1998 and December 31, 1997.  These
amounts will be paid upon the occurrence of certain specified events, as
outlined in the respective partnership's agreement.

     The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements. 
For the six months ended June 30, 1998 and 1997, the receipt of distributions
from partnerships and existing cash resources were adequate to support operating
cash requirements.

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

     The Partnership's net loss for the three months ended June 30, 1998
increased from the corresponding period in 1997 primarily due to a decrease in
share of income from partnerships primarily due to increased operating expenses
at the properties.  Contributing to the increase in the Partnership's net loss
was an increase in general and administrative expenses primarily due to an
increase in payroll expenses.

     The Partnership incurred a net loss for the six months ended June 30, 1998,
as compared to net income during the corresponding period in 1997, primarily due
to the extraordinary gain on disposition of investment and forgiveness of
accrued interest related to the sale and foreclosure of the Partnership's
remaining interests in River Place and Deerfield during 1997, as discussed in
the notes to the consolidated financial statements.  Contributing to the
increase in net loss was a decrease in share of income from partnerships, as
discussed above.  Also contributing to the increase in the Partnership's net
loss was a decrease in interest and other income primarily due to the receipt of
cash during 1997 which was previously held in escrow related to River Place. 
Partially offsetting the increase in the Partnership's net loss was a decrease
in interest expense due to the payoff of the debt related to River Place and
Deerfield during 1997. 

     For financial reporting purposes, the Partnership, as a limited partner in
the Local Partnerships, does not record losses from the Local Partnerships in

                                      -12-
<PAGE>
PART I.   FINANCIAL INFORMATION
          ---------------------
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          -------------------------------------------------
               CONDITION AND RESULTS OF OPERATIONS - Continued
               -----------------------------------

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 recognized losses for the three and six months ended
June 30, 1998 did not include losses of $117,074 and $234,149, respectively,
compared to excluded losses of $144,412 and $288,824, respectively, for the
three and six months ended June 30, 1997.

                            Year 2000 Computer Issue
                            ------------------------

     The Year 2000 ("Y2K") computer issue refers to the inability of many
computer systems in use today to recognize "00" in the date field as the year
2000 and to recognize the year 2000 as a leap year.  The Y2K problem arose
because, for many years, computer software programs, including programs embedded
in hardware, utilized only the last two digits to specify the year with the
assumption that the first two digits were "19."  As a result, such programs may
not be able to recognize and process dates beyond 1999; rather they may
recognize and  process "00," "01," "02," etc. incorrectly as 1900, 1901, 1902,
instead of as 2000, 2001, 2002.  In the opinion of computer experts, this could
cause such programs to create erroneous results, malfunction, or fail completely
unless corrective measures are taken.

     The Partnership utilizes software and related computer technologies
essential to its operations that will be affected by the Y2K issue.  The
Managing General Partner is studying what actions will be necessary to make its
computer systems Year 2000 compliant; certain upgrades are already scheduled. 
The expense associated with these actions cannot presently be determined, but
the Managing General Partner does not expect it to be material.





























                                      -13-
<PAGE>
PART II.  OTHER INFORMATION
          -----------------
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES
          -------------------------------

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

     The Partnership defaulted on its purchase money note relating to Paradise
Associates, L.P. (Paradise Foothills) when the note matured on January 30, 1996
and was not paid.  The default amount included principal and accrued interest of
$230,000 and $371,464, respectively.  As of August 7, 1998, principal and
accrued interest totaling $230,000 and $527,976, respectively, were due.  The
Managing General Partner made an offer for a nine-year extension, and as of
August 7, 1998, the Managing General Partner is awaiting a response from the
purchase money noteholder.  There is no assurance that the Managing General
Partner will reach an agreement of any kind with the noteholder.  Additionally,
the holder of the loan secured by the mortgage on Paradise Foothills has
attempted to terminate the provisional workout agreement related to the
property.  The Managing General Partner is disputing the purported termination,
and since July, 1997, has not received any response from the mortgagee.  Should
the purchase money noteholder or the mortgagee begin foreclosure proceedings.
The Managing General Partner intends to vigorously contest such actions. 
However, there can be no assurance that the Partnership will be able to retain
its interest in the Local Partnership.  The uncertainty regarding the continued
ownership of the Partnership's interest in the related Local Partnership does
not impact the Partnership's financial condition, as discussed above.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
          --------------------------------

     a.   None

     b.   No Reports on Form 8-K were filed with the Commission during the
          quarter ended June 30, 1998.

     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



August 7, 1998               by: /s/ Michael J. Tuszka
--------------                   ---------------------------------------
DATE                             Michael J. Tuszka
                                   Vice President
                                   and Chief Accounting Officer
                                   (Principal Financial Officer
                                   and Principal Accounting Officer)








































                                      -15-
<PAGE>


                                  EXHIBIT INDEX
                                  -------------


Exhibit                                         Method of Filing
-------                                   -----------------------------

27        Financial Data Schedule         Filed herewith electronically






















































                                      -16-