June 30, March 31, 2007 2007 ------------- ------------- (Unaudited) (Audited) ASSETS Operating assets: Property and equipment at cost, net of accumulated depreciation of $66,909,805 and $68,415,555, respectively $ 64,838,658 $ 67,679,479 Cash and cash equivalents 11,953,152 5,256,344 Cash held in escrow 5,286,730 5,191,046 Deferred costs, net of accumulated amortization of $1,192,966 and $1,226,338, respectively 1,261,376 1,354,307 Other assets 1,269,432 1,374,292 ------------- ------------- Total operating assets 84,609,348 80,855,468 ------------- ------------- Assets from discontinued operations (Note 5): Property and equipment held for sale, net of accumulated depreciation of $20,185,652 and $30,151,980, respectively 16,325,396 31,822,485 Net assets held for sale 3,001,303 4,864,203 ------------- ------------- Total assets from discontinued operations 19,326,699 36,686,688 ------------- ------------- Total assets $ 103,936,047 $ 117,542,156 ============= ============= LIABILITIES AND PARTNERS' DEFICIT Operating liabilities: Mortgage notes payable $ 83,501,487 $ 85,828,031 Due to debt guarantor 64,813,250 63,943,133 Accounts payable 4,553,584 306,550 Accrued interest payable 16,811,075 16,747,001 Security deposit payable 648,789 669,329 Due to local general partners and affiliates 4,826,344 5,445,990 Due to general partners and affiliates 7,130,738 6,921,475 ------------- ------------- Total operating liabilities 182,285,267 179,861,509 ------------- ------------- Liabilities from discontinued operations (Note 5): Mortgage notes payable of assets held for sale 21,174,672 32,569,200 Net liabilities held for sale including minority interest 5,506,472 15,741,623 ------------- ------------- Total liabilities from discontinued operations 26,681,144 48,310,823 ------------- ------------- Minority interest (660,158) (420,360) ------------- ------------- Commitments and contingencies (Note 6) Partners' deficit: Limited partners (139,101.5 BACs issued and outstanding) (105,559,923) (111,299,062) General Partners 1,189,717 1,089,246 ------------- ------------- Total partners' deficit (104,370,206) (110,209,816) ------------- ------------- Total liabilities and partners' deficit $ 103,936,047 $ 117,542,156 ============= =============UNITED STATES

~~Three~~SECURITIES AND ~~Months~~EXCHANGE Ended June 30, -------------------------- 2007 2006* ----------- ----------- Operations: Revenues Rental income $ 3,090,174 $ 3,150,906 Other 281,267 219,867 ----------- ----------- Total Revenues 3,371,441 3,370,773 ----------- ----------- Expenses General and administrative 1,123,540 888,845 General and administrative-related parties (Note 2) 514,596 541,583 Operating 504,749 479,152 Repairs and maintenance 749,292 537,026 Real estate taxes 181,941 174,986 Insurance 232,790 224,261 Interest 1,890,399 1,867,939 Depreciation and amortization 1,135,027 1,150,255 ----------- ----------- Total expenses 6,332,334 5,864,047 ----------- ----------- Loss from operations before minority interest (2,960,893) (2,493,274) Minority interest in loss of subsidiary partnerships from operations 112,590 80,422 ----------- ----------- Loss from operations (2,848,303) (2,412,852) Discontinued operations: Income from discontinued operations (including gain on sale of properties and minority interest) 8,645,413 5,193,998 ----------- ----------- Net income $ 5,797,110 $ 2,781,146 =========== =========== Loss from operations-limited partners $(2,819,820) $(2,388,723) Income from discontinued operations (including gain on sale of properties and minority interest) - limited partners 8,558,959 5,142,058 ----------- ----------- Net income- limited partners $ 5,739,139 $ 2,753,335 =========== =========== Number of BACs outstanding 139,101.5 139,101.5 =========== =========== Loss from operations per BAC $ (20.27) $ (17.18) Income from discontinued operations (including gain on sale of properties and minority interest) per BAC 61.53 36.97 ----------- ----------- Net income per BAC $ 41.26 $ 19.79 =========== ===========COMMISSION

~~Limited General Total Partners Partners ------------- ------------- ------------- Partners' (deficit) capital - April 1~~Washington, D.C. 2007 $(110,209,816) $(111,299,062) $ 1,089,246 Net income - Three months ended June 30, 2007 5,797,110 5,739,139 57,971 Contribution - write-off of related party debt 42,500 0 42,500 ------------- ------------- ------------- Partners' (deficit) capital - June 30, 2007 $(104,370,206) $(105,559,923) $ 1,189,717 ============= ============= =============20549

Three Months Ended June 30, ---------------------------- 2007 2006* ------------ ------------ Cash flows from operating activities: Net income $ 5,797,110 $ 2,781,146 ------------ ------------ Adjustments to reconcile net income to net cash used in operating activities: Gain on sale of properties (6,681,804) (791,439) Depreciation and amortization 1,380,593 1,815,829 Minority interest in loss of subsidiaries (2,586,152) (5,612,681) Increase (decrease) in accounts payable and other liabilities 602,295 (452,219) Increase in accrued interest payable 212,139 711,768 Decrease in security deposits payable (14,812) (162,112) (Increase) decrease in cash held in escrow (187,104) 403,979 Decrease (increase) in other assets 209,472 (60,541) (Decrease) increase in due to general partners and affiliates (86,981) (336,978) Increase in due to local general partners and affiliates 38,200 244,793 Decrease in due to local general partners and affiliates (183,030) (9,248) Increase in due to debt guarantor 870,117 1,232,059 ------------ ------------ Total adjustments (6,427,067) (3,016,790) ------------ ------------ Net cash used in operating activities (629,957) (235,644) ------------ ------------ Cash flows from investing activities: Acquisitions of property and equipment (76,939) (131,297) Proceeds from sale of properties 16,579,605 4,700,000 Costs paid relating to sale of properties (4,286,646) (552,641) Increase in cash held in escrow 197,906 (271,481) ------------ ------------ Net cash provided by (used in) investing activities 12,413,926 3,744,581 ------------ ------------ Cash flows from financing activities: Principal payments of mortgage notes payable (5,201,913) (3,170,768) Increase in deferred costs (6,198) 0 Decrease in capitalization of consolidated subsidiaries attributable to minority interest (410,107) 0 ------------ ------------ Net cash used in financing activities (5,618,218) (3,170,768) ------------ ------------ Net increase in cash and cash equivalents 6,165,751 338,169 Cash and cash equivalents at beginning of period 6,222,149 5,435,049 ------------ ------------ Cash and cash equivalents at end of period** $ 12,387,900 $ 5,773,218 ============ ============ Summarized below are the components of the gain on sale of properties: Proceeds from sale of properties $(16,579,605) $ (4,700,000) Costs paid relating to sale of properties 4,286,646 552,641 Property and equipment, net of accumulated depreciation 17,097,985 7,107,440 Prepaid expenses and other assets (353,944) 249,225 Cash held in escrow 1,392,050 1,702,293 Deferred costs 112,887 0 Accounts payable and other liabilities (2,218,094) (575,322) Accrued interest payable (1,588,417) (1,311) Security deposits payable (313,533) (41,448) Mortgage notes payable (8,519,159) (10,130,036) Due to local general partners and their affiliates (43,315) (299,300) Due to general partners and affiliates (2,919,743) (47,500) Capitalization of consolidated subsidiaries attributable to minority interest 2,964,438 5,391,879______________

~~Three Months Ended June 30,~~ FORM 10----------------------- 2007 2006* ---------- ---------- Partnership management fees (a) $ 250,000 $ 287,500 Expense reimbursement (b) 90,737 71,231 Local administrative fee (d) 9,126 8,440 ---------- ---------- Total general and administrative-General Partners 349,863 367,171 ---------- ---------- Property management fees incurred to affiliates of the subsidiary partnerships' general partners (c) 164,733 174,412 ---------- ---------- Total general and administrative-related parties $ 514,596 $ 541,583 ========== ==========Q

Three Months Ended June 30, ----------------------- 2007 2006* ---------- ---------- Local administrative fee (d) $ 7,760 $ 13,810 ---------- ---------- Total general and administrative-General Partners 7,760 13,810 ---------- ---------- Property management fees incurred to affiliates of the Local General Partners (c) 101,385 142,035 ---------- ---------- Total general and administrative-related parties $ 109,145 $ 155,845 ========== ==========______________

Consolidated Balance Sheets: June 30, March 31, 2007 2007 ----------- ----------- Assets Property and equipment - less accumulated depreciation of $20,185,652 and $30,151,980, respectively $16,325,396 $31,822,485 Cash and cash equivalents 434,748 965,805 Cash held in escrow 757,575 2,256,111 Deferred costs, net of accumulated amortization of $620,536 and $1,001,285 448,088 530,727 Other assets 1,360,892 1,111,560 ----------- ----------- Total assets $19,326,699 $36,686,688 =========== =========== Liabilities Mortgage notes payable $21,174,672 $32,569,200 Accounts payable 773,151 6,641,137 Accrued interest payable 1,767,494 3,207,846 Security deposits payable 223,271 531,076 Due to local general partners and affiliates 543,074 111,573 Due to general partners and affiliates 1,568,048 4,826,537 Minority interest 631,434 423,454 ----------- ----------- Total liabilities $26,681,144 $48,310,823 =========== ===========(Mark One)

~~Consolidated~~x ~~Statements~~QUARTERLY ofREPORT ~~Discontinued~~PURSUANT ~~Operations:~~TO ~~Three~~SECTION ~~Months~~13 ~~Ended~~OR June 30, ---------------------------- 2007 2006* ------------ ------------ Revenues Rental income $ 2,176,234 $ 3,308,994 Other 107,914 94,473 Gain on sale of properties 6,681,804 791,439 ------------ ------------ Total revenue 8,965,952 4,194,906 ------------ ------------ Expenses General and administrative 475,678 954,738 General and administrative-related parties 15(~~Note 2~~d) ~~109,145~~OF ~~155,845~~THE ~~Operating~~SECURITIES ~~261,815~~EXCHANGE ~~688,852~~ACT ~~Repairs~~OF and maintenance 620,898 634,727 Real estate taxes 168,902 220,857 Insurance 248,691 255,941 Interest 663,406 956,633 Depreciation and amortization 245,566 665,574 ------------ ------------ Total expenses 2,794,101 4,533,167 ------------ ------------ Income (loss) before minority interest 6,171,851 (338,261) Minority interest in loss of subsidiaries from discontinued operations 2,473,562 5,532,259 ------------ ------------ Total income from discontinued operations $ 8,645,413 $ 5,193,998 ============ ============ Income - limited partners from discontinued operations $ 8,558,959 $ 5,142,058 ============ ============ Number of BACs outstanding 139,101.5 139,101.5 ============ ============ Income discontinued operations per BAC $ 61.53 $ 36.97 ============ ============1934

~~Cash~~For the ~~flows~~quarterly ~~from~~period ~~Discontinued~~ended ~~Operations: Three Months Ended~~ December 31, ---------------------------- 2007 2006* ------------ ------------ Net cash provided by (used in) operating activities $ 4,098,421 $ (4,627,732) ------------ ------------ Net cash provided by investing activities $ 12,348,204 $ 13,114,256 ------------ ------------ Net cash used in financing activities $(13,113,898) $(22,740,060) ------------ ------------2008

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

Commission File Number 0-24656

LIBERTY TAX CREDIT PLUS III L.P.

(Exact name of registrant as specified in its charter)

Delaware		13-3491408
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

625 Madison Avenue, New York, New York		10022
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (212) 317-5700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]		Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)		Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No x

PART I - Financial Information

Item 1. Financial Statements

LIBERTY TAX CREDIT PLUS III L.P.

AND SUBSIDIARIES

Consolidated Balance Sheets

	December 31, 2008			March 31, 2008
	(Unaudited)			(Audited)

ASSETS

Operating assets:
Property and equipment at cost, net of accumulated depreciation of $1,902,062 and $29,185,929, respectively	$	1,365,734		$	26,026,024
Cash and cash equivalents		7,273,160			8,166,803
Cash held in escrow		204,686			2,802,321
Deferred costs, net of accumulated amortization of $0 and $695,238, respectively		0			465,983
Other assets		398,228			1,531,315
Total operating assets		9,241,808			38,992,446
Assets from discontinued operations (Note 6):
Property and equipment held for sale, net of accumulated depreciation of $10,310,699 and $6,741,633, respectively		9,402,456			5,359,700
Net assets held for sale		1,271,234			867,622
Total assets from discontinued operations		10,673,690			6,227,322
Total assets	$	19,915,498		$	45,219,768
LIABILITIES AND PARTNERS’ (DEFICIT) CAPITAL
Operating liabilities:
Mortgage notes payable	$	0		$	29,896,484
Accounts payable		254,987			1,538,747
Accrued interest payable		0			6,415,369
Security deposit payable		37,027			249,578
Due to local general partners and affiliates		0			197,139
Due to general partners and affiliates		339,093			2,608,958
Total operating liabilities		631,107			40,906,275
Liabilities from discontinued operations (Note 6):
Mortgage notes payable of assets held for sale		10,192,987			8,563,060
Net liabilities held for sale including minority interest		3,186,039			6,217,982
Total liabilities from discontinued operations		13,379,026			14,781,042
Total liabilities		14,010,133			55,687,317
Minority interest		7,115			783,910
Commitments and contingencies (Note 7)
Partners’ (deficit) capital:
Limited partners (139,101.5 BACs issued and outstanding)		(7,501,825	)		(22,277,126	)
General Partners		13,400,075			11,025,667
Total partners’ (deficit) capital		5,898,250			(11,251,459	)
Total liabilities and partners’ (deficit) capital	$	19,915,498		$	45,219,768



See accompanying notes to consolidated financial statements.

- 2 -

LIBERTY TAX CREDIT PLUS III L.P.

AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

	Three Months Ended December 31,						Nine Months Ended December 31,
	2008			2007*			2008			2007*

Operations:
Revenues
Rental income	$	136,741		$	117,238		$	362,055		$	350,314
Other		40,747			187,152			137,906			503,982
Total revenues		177,488			304,390			499,961			854,296
Expenses
General and administrative		149,009			187,381			387,415			546,249
General and administrative-related parties (Note 2)		(38,822	)		264,857			333,127			910,855
Operating		5,549			15,011			79,551			83,911
Repairs and maintenance		41,975			32,769			93,036			96,714
Real estate taxes		23,110			37,360			97,831			90,735
Insurance		14,932			16,575			28,295			27,725
Depreciation and amortization		29,072			27,888			87,227			85,503
Total expenses		224,825			581,841			1,106,482			1,841,692
Loss from operations before minority interest		(47,337	)		(277,451	)		(606,521	)		(987,396	)
Minority interest in loss of subsidiary partnerships from operations		569			517			1,781			1,558
Loss from operations		(46,768	)		(276,934	)		(604,740	)		(985,838	)
Discontinued operations:
Income from discontinued operations (including minority interest and gain on sale of properties)		11,430,417			11,102,838			15,529,286			97,461,146
Net income	$	11,383,649		$	10,825,904		$	14,924,546		$	96,475,308
Loss from operations-limited partners	$	(46,300	)	$	(274,165	)	$	(598,692	)	$	(975,980	)
Income from discontinued operations (including minority interest and gain on sale of properties) – limited partners		11,316,113			10,991,810			15,373,993			96,486,535
Net income – limited partners	$	11,269,813		$	10,717,645		$	14,775,301		$	95,510,555
Number of BACs outstanding		139,101.5			139,101.5			139,101.5			139,101.5
Loss from operations per BAC	$	(0.33	)	$	(1.98	)	$	(4.30	)	$	(7.02	)
Income from discontinued operations (including minority interest and gain on sale of properties) – per BAC		81.35			79.02			110.52			693.64
Net income BAC	$	81.02		$	77.04		$	106.22		$	686.62


* Reclassified for comparative purposes.

See accompanying notes to consolidated financial statements.

- 3 -

LIBERTY TAX CREDIT PLUS III L.P.

AND SUBSIDIARIES

Consolidated Statement of Changes in Partners’ (Deficit) Capital

(Unaudited)

	Total			Limited Partners			General Partners


Partners’ (deficit) capital – April 1, 2008	$	(11,251,459	)	$	(22,277,126	)	$	11,025,667
Net income – nine months ended December 31, 2008		14,924,546			14,775,301			149,245
Contribution – write off of partnership management fees related to sold properties		2,139,160			0			2,139,160
Contributions – write-off of related party debt		86,003			0			86,003
Partners’ (deficit) capital – December 31, 2008	$	5,898,250		$	(7,501,825	)	$	13,400,075



See accompanying notes to consolidated financial statements.

- 4 -

LIBERTY TAX CREDIT PLUS III L.P.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended December 31,
	2008			2007

Cash flows from operating activities:
Net income	$	14,924,546		$	96,475,308
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Gain on sale of properties		(14,844,594	)		(104,931,626	)
Depreciation and amortization		829,191			3,400,550
Minority interest in (loss) income of subsidiaries		(1,652,601	)		1,391,206
Decrease in accounts payable and other liabilities		(509,227	)		(4,332,480	)
Increase in accrued interest payable		179,962			88,376
Increase (decrease) in security deposits payable		17,371			(22,509	)
Increase in cash held in escrow		(57,992	)		(606,185	)
Decrease in other assets		981,213			359,187
Increase (decrease) in due to general partners and affiliates		1,030,234			(105,920	)
Increase in due to local general partners and affiliates		0			444,358
Decrease in due to local general partners and affiliates		(9,268	)		(502,907	)
Increase in due to debt guarantor		0			1,740,234
Total adjustments		(14,035,711	)		(103,077,716	)
Net cash provided by (used in) operating activities		888,835			(6,602,408	)
Cash flows from investing activities:
Acquisitions of property and equipment		(13,605	)		(381,744	)
Proceeds from sale of properties		1,836,846			28,369,979
Costs paid related to sale of properties		(726,586	)		(1,614,918	)
Increase in cash held in escrow		(84,160	)		(53,125	)
Net cash provided by investing activities		1,012,495			26,320,192
Cash flows from financing activities:
Principal payments of mortgage notes payable		(2,643,472	)		(6,832,373	)
Decrease (increase) in deferred costs		12,203			(7,198	)
Decrease in due to local general partners and affiliates		0			(502,907	)
Decrease in capitalization of consolidated subsidiaries attributable to minority interest		0			(445,287	)
Distributions		(122,392	)		0
Net cash used in financing activities		(2,753,661	)		(7,284,858	)
Net (decrease) increase in cash and cash equivalents		(852,331	)		12,432,926
Cash and cash equivalents at beginning of period		8,420,862			6,222,149
Cash and cash equivalents at end of period*	$	7,568,531		$	18,655,075
Summarized below are the components of the gain on sale of properties:
Net proceeds from sale of properties	$	(1,110,260	)	$	(26,755,061	)
Decrease in property and equipment, net of accumulated depreciation		19,822,639			55,357,241
Decrease in deferred costs		348,358			500,374
Decrease (increase) in prepaid expenses and other assets		200,705			(18,458	)
Decrease in cash held in escrow		2,700,225			3,596,717
Decrease in accounts payable, accrued expenses and other liabilities		(1,059,485	)		(58,000	)
Decrease in accrued interest payable		(6,270,391	)		(9,280,390	)
Decrease in security deposits payable		(247,615	)		(737,318	)
Decrease in mortgage notes payable		(25,623,085	)		(59,044,111	)
Decrease in due to local general partners and their affiliates		(2,490,749	)		(2,701,353	)
Increase (decrease) in due to general partners and affiliates		(1,200,939	)		(3,307,562	)
Decrease due to debt guarantor		0			(65,683,367	)
Related party debt reclassified as capital contribution		86,003			3,199,662
Supplemental disclosures of non-cash investing and financing activities:
Contribution from write-off of related party debt	$	86,003		$	0
Contribution from write-off of partnership management fees related to sold properties		2,139,160			0

* Cash and cash equivalents, end of period, includes cash and cash equivalents from discontinued operations of $295,371 and $290,376
See accompanying notes to consolidated financial statements

- 5 -

LIBERTY TAX CREDIT PLUS III L.P.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008

(Unaudited)

NOTE 1 – General

The consolidated financial statements for the nine months ended December 31, 2008 and 2007, include the accounts of Liberty Tax Credit Plus III L.P. (the “Partnership”) and 15 and 40 subsidiary partnerships (the “subsidiary partnerships”, “Local Partnerships” or “subsidiaries”), respectively. The Partnership holds a 98% limited partnership interest in all subsidiary partnerships. Through the rights of the Partnership and/or an affiliate of Related Credit Properties III L.P. and Liberty GP III Inc. (the “General Partners”), which affiliate has a contractual obligation to act on behalf of the Partnership, to remove the general partner of each subsidiary partnership (each a “Local General Partner”) and to approve certain major operating and financial decisions, the Partnership has a controlling financial interest in the subsidiary partnerships. As of December 31, 2008, the Partnership has sold its partnership interest in forty-three Local Partnerships, the property and the related assets and liabilities of fifteen Local Partnerships, two properties owned by Local Partnership and transferred the deed to the property and the related assets and liabilities of two Local Partnerships (see Note 4). In addition, as of December 31, 2008, the Partnership has entered into a purchase and sale agreement to sell its limited partnership interest in one Local Partnership (see Note 5).

For financial reporting purposes, the Partnership’s fiscal quarter ends on December 31 in order to allow adequate time for the subsidiaries’ financial statements to be prepared and consolidated. All subsidiaries have fiscal quarters ending September 30. Accounts of the subsidiaries have been adjusted for intercompany transactions from October 1 through December 31.

All intercompany accounts and transactions have been eliminated in consolidation.

Increases (decreases) in the capitalization of consolidated subsidiaries attributable to minority interest arise from cash contributions from and cash distributions to the minority interest partners.

Losses attributable to minority interests which exceed the minority interests’ investment in a subsidiary have been charged to the Partnership. Such losses aggregated approximately $0, $118,000, $0 and $226,000 for the three and nine months ended December 31, 2008 and 2007, respectively. The Partnership’s investment in each subsidiary is generally equal to the respective subsidiary partners’ equity less minority interest capital, if any. In consolidation, all subsidiary partnership losses are included in the Partnership’s capital account except for losses allocated to minority interest capital.

The books and records of the Partnership are maintained on the accrual basis of accounting in accordance with generally accepted accounting principles (“GAAP”). In the opinion of the General Partners of the Partnership, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Partnership as of December 31, 2008, results of its operations for the three and nine months ended December 31, 2008 and 2007 and its cash flows for the nine months ended December 31, 2008 and 2007. However, the operating results for the nine months ended December 31, 2008 may not be indicative of the results for the year.

Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed. These consolidated 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 for the year ended March 31, 2008.

Recent Accounting Pronouncements

In October 2008, the Financial Accounting Standards Board (“FASB”) issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, which addresses the application of Statement of Financial Accounting Standards (“SFAS”) No.157 for illiquid financial instruments. FSP FAS 157-3 clarifies that approaches to determining fair value other than the market approach may be appropriate when the market for a financial asset is not active. We do not expect the adoption of FSP FAS 157-3 to have a material effect on our consolidated financial statements.

NOTE 2 - Related Party Transactions

Liberty Associates IV L.P. (“Liberty Associates”), an affiliate of the General Partners, has a 1% and .998% interest as a special limited partner in thirteen of the Local Partnerships, respectively, as of December 31, 2008. Affiliates of the General Partners also have a minority interest in certain Local Partnerships.

As of December 31, 2008 and March 31, 2008, the Partnership was owed approximately $0 and $1,127,000, respectively, from the Local Partnerships for operating advances. These advances were non-interest bearing and had no set repayment terms. The Partnership had advanced these monies to one Local Partnership to fund its operations. In August 2008, the property and the related assets and liabilities of this Local Partnership were sold (see Note 4), and as a result, approximately $1,129,000 in such advances were written off.

The General Partners and their affiliates and the Local General Partners and their affiliates perform services for the Partnership and the Local General Partners, respectively. The costs incurred to related parties from operations for the three and nine months ended December 31, 2008 and 2007 were as follows:

- 6 -

LIBERTY TAX CREDIT PLUS III L.P.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008

(Unaudited)

	Three Months Ended December 31,					Nine months Ended December 31,
	2008			2007*		2008		2007*

Partnership management fees (a)	$	(57,500	)	$	208,750	$	195,000	$	708,130
Expense reimbursement (b)		18,053			55,482		136,252		200,850
Local administrative fee (d)		625			625		1,875		1,875
Total general and administrative-related parties	$	(38,822	)	$	264,857	$	333,127	$	910,855
* Reclassified for comparative purposes.

The costs incurred to related parties from discontinued operations for the three and nine months ended December 31, 2008 and 2007 were as follows:

	Three Months Ended December 31,				Nine months Ended December 31,
	2008		2007*		2008		2007*

Local administrative fee (d)	$	1,875	$	16,261	$	7,375	$	48,782
Total general and administrative-General Partners		1,875		16,261		7,375		48,782
Property management fees incurred to affiliates of the Local General Partners (c)		56,898		243,166		250,976		779,041
Total general and administrative-related parties	$	58,773	$	259,427	$	258,351	$	827,823
* Reclassified for comparative purposes.

(a) The General Partners are entitled to receive a partnership management fee after payment of all Partnership expenses, which, together with the local annual administrative fees, will not exceed a maximum of 0.5% per annum of invested assets (as defined in the Partnership’s Amended and Restated Agreement of Limited Partnership (“Partnership Agreement”)), for administering the affairs of the Partnership. The partnership management fee, subject to the foregoing limitation, will be determined by the General Partners in their sole discretion based upon their review of the Partnership’s investments. Unpaid partnership management fees for any year will be accrued without interest and will be payable only to the extent of available funds after the Partnership has made the distributions to the BACs holders of sale or refinancing proceeds equal to their original capital contributions plus a 10% priority return thereon (to the extent not theretofore paid out of cash flow). Partnership management fees owed to the General Partners amounting to approximately $191,000 and $2,247,000 were accrued and unpaid at December 31, 2008 and March 31, 2008. During the quarter ended December 31, 2008, management deemed the unpaid partnership management fees related to sold properties uncollectible and wrote off approximately $2,139,000, resulting in a non-cash General Partner contribution of the same amount.

(b) The Partnership reimburses the General Partners and their affiliates for actual Partnership operating expenses incurred by the General Partners and their affiliates on the Partnership’s behalf. The amount of reimbursement from the Partnership is limited by the provisions of the Partnership Agreement. Another affiliate of the General Partners performs asset monitoring for the Partnership. These services include site visits and evaluations of the subsidiary partnerships’ performance.

(c) The subsidiary partnerships incurred property management fees amounting to $84,857 and $276,230 and $330,688 and $934,485 for the three and nine months ended December 31, 2008 and 2007, respectively. Of these fees, $56,898 and $243,166 and $250,976 and $779,041, respectively, were incurred to affiliates of the Local General Partners, all of which related to discontinued operations.

(d) Liberty Associates IV L.P., a special limited partner of the subsidiary partnerships, is entitled to receive a local administrative fee of up to $2,500 per year from each subsidiary partnership.

NOTE 3 – Fair Value Measurements

In the first quarter of 2008, we adopted SFAS No. 157, “Fair Value Measurements”, for financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement provides for a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Level 1:

Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

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LIBERTY TAX CREDIT PLUS III L.P.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008

(Unaudited)

Level 2:

Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3:

Unobservable inputs that reflect our own assumptions.

As permitted, we chose not to elect the fair value option as prescribed by FASB SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” – Including an Amendment of FASB Statement No. 115, for our financial assets and liabilities that had not been previously carried at fair value. Therefore, we did not elect to fair value any additional items under SFAS No. 159. We, in accordance with Financial Accounting Standards Board Staff Position No. 157-2, “The Effective Date of FASB Statement No. 157”, will defer application on SFAS No. 157 for nonfinancial assets and nonfinancial liabilities until first quarter 2009.

The estimated fair value of financial instruments has been determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. At December 31, 2008, the carrying amount of the Partnership’s mortgage notes payable approximated fair value as their contractual interest rates approximated market yields for similar debt instruments.

	At December 31, 2008						Fair Value Measurements at December 31, 2008 using Fair Value Hierarchy
	Cost			Fair Value			Level 1			Level 2			Level 3
LIABILITIES:
Mortgage notes		$	10,192,987		$	10,192,987		$	0		$	0		$	10,192,987

NOTE 4 – Sale of Properties

The Partnership is currently in the process of disposing of its investments. It is anticipated that the completion of this process will take less than one year. During the nine months ended December 31, 2008, the Partnership sold its limited partnership interest in eleven Local Partnerships and the property and related assets and liabilities of two Local Partnerships. Through December 31, 2008, the Partnership has sold its limited partnership interest in forty-three Local Partnerships, the property and the related assets and liabilities of fifteen Local Partnerships, two properties owned by a Local Partnership and transferred the deed to the property and the related assets and liabilities of two Local Partnerships. In addition, as of December 31, 2008, the Partnership has entered into a purchase and sale agreement to sell its limited partnership interest in one Local Partnership (see Note 5). There can be no assurance as to when the Partnership will dispose of its remaining investments or the amount of proceeds which may be received. However, based on the historical operating results of the Local Partnerships and the current economic conditions, including changes in tax laws, it is unlikely that the proceeds from such sales received by the Partnership will be sufficient to return to the limited partners their original investment.

On December 31, 2008, the Partnership sold its limited partnership interest in Citrus Meadows Apartments, Ltd. (“Citrus Meadows”) to an affiliate of the Local General Partner for a sales price of $10. The sale resulted in a gain of approximately $8,175,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $8,175,000 at the date of the sale and the $10 cash received from the sale.

On August 28, 2008, the property and the related assets and liabilities of L.I.H. Chestnut Associates, L.P. (“Chestnut”) were sold to an unaffiliated third party purchaser for a sales price of one dollar plus the assumption of primary and secondary mortgage loans in the amount of $4,400,000. In addition, the Partnership paid for immediate repairs in the amount of approximately $269,000. The sale also resulted in a write-off of operating advances of approximately $1,129,000 owed to the Partnership. The sale resulted in a gain of approximately $2,446,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately 2,446,000 at the date of the sale, which was recorded during the quarter ended December 31, 2008.

On August 4, 2008, the Partnership sold its limited partnership interest in Forrest Ridge Apartments, Ltd. (“Forrest Ridge”) to an unaffiliated third party purchaser for a sales price of $10,000. The sale resulted in a gain of approximately $57,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $47,000 at the date of the sale and the $10,000 cash received from the sale. The sale also resulted in a non-cash contribution to the Local Partnership from the General Partner of $500 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner.

On August 4, 2008, the Partnership sold its limited partnership interest in Mountain View Apartments, Ltd. (“Mountain View”) to an unaffiliated third party purchaser for a sales price of $16,666. The sale resulted in a gain of approximately $293,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $276,000 at the date of the sale and the $16,666 cash received from the sale.

On August 4, 2008, the Partnership sold its limited partnership interest in The Village at Carriage Hill, Ltd. (“Carriage Hill”) to an unaffiliated third party purchaser for a sales price of $16,666. The sale resulted in a gain of approximately $342,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $326,000 at the date of the sale and the $16,666 cash received from the sale.

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LIBERTY TAX CREDIT PLUS III L.P.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008

(Unaudited)

On August 4, 2008, the Partnership sold its limited partnership interest in Callaway Village Limited Partnership (“Callaway Village”) to an unaffiliated third party purchaser for a sales price of $16,666. The sale resulted in a gain of approximately $252,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $235,000 at the date of the sale and the $16,666 cash received from the sale.

On August 4, 2008, the Partnership sold its limited partnership interest in Holly Hill Limited Partnership (“Holly Hill”) to an unaffiliated third party purchaser for a sales price of $16,666. The sale resulted in a gain of approximately $434,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $417,000 at the date of the sale and the $16,666 cash received from the sale.

On August 4, 2008, the Partnership sold its limited partnership interest in Knob Hill Apartments, Ltd. (“Knob Hill”) to an unaffiliated third party purchaser for a sales price of $16,666. The sale resulted in a gain of approximately $81,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $64,000 at the date of the sale and the $16,666 cash received from the sale.

On August 4, 2008, the Partnership sold its limited partnership interest in Mayfair Apartments, Ltd. (“Mayfair”) to an unaffiliated third party purchaser for a sales price of $16,666. The sale resulted in a gain of approximately $269,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $253,000 at the date of the sale and the $16,666 cash received from the sale. The sale also resulted in a non-cash contribution to the Local Partnership from the General Partner of $500 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner.

On July 23, 2008, the Partnership sold its limited partnership interest in Inter-Tribal Indian Village Housing Development Associates, L.P. (“Indian Village”) to an affiliate of the Local General Partner for a sales price of $2,500. The sale resulted in a gain of approximately $910,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $908,000 at the date of the sale and the $2,500 cash received from the sale.

On June 10, 2008, the Partnership sold its limited partnership interest in The Hearthside Limited Dividend Housing Association Limited Partnership (“Hearthside”) to the Local General Partner for a sales price of $200,000. The sale resulted in a gain of approximately $930,000, resulting from the write-off of the deficit basis in the Local Partnership of approximately $730,000 at the date of sale and the $199,990 cash received from the sale.

On May 9, 2008, the court, in the foreclosure proceeding commenced in December 2007, sold the property and the related assets and liabilities of Williamsburg Residential II, L.P. (“Williamsburg”) for a sales price of $1,520,752, which approximates the mortgage debt, accrued interest and other fees at the date of the closing. The sale resulted in a gain of approximately $412,000 resulting from the write-off of the deficit basis in the property at the date of sale.

On May 6, 2008, the Partnership sold its limited partnership interest in Art Apartments Associates (“Art Apartments”) to an affiliate of the Local General Partner for a sales price of one dollar. The sale resulted in a gain of approximately $646,000 resulting from the write-off the deficit basis in the Local Partnership at the date of sale.

On December 31, 2007, the Partnership sold its limited partnership interest in Foxcroft Apartments, Ltd. (“Foxcroft”) to an affiliate of the Local General Partner for a sales price of $1,000. The sale resulted in a gain of approximately $178,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $177,000 at the date of the sale and $1,000 cash received from the sale, which was recorded during the quarter ended March 31, 2008. An adjustment to the gain of approximately $1,000 was recorded during the quarter ended September 30, 2008, resulting in an overall gain of approximately $179,000. The sale also resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $6,000 as a result of write-off of fees owed by the Local Partnership to an affiliate of the General Partner.

On December 31, 2007, the Partnership sold its limited partnership interest in River Oaks Apartments, Ltd. (“River Oaks”) to an affiliate of the Local General Partner for a sales price of $1,000. The sale resulted in a gain of approximately $111,000 resulting from the write-off of the deficit basis in the Local Partnership approximately $110,000 at the date of the sale and the $1,000 cash received from the sale, which was recorded during the quarter ended March 31, 2008. An adjustment to the gain of approximately $1,000 was recorded during the quarter ended September 30, 2008, resulting in an overall gain of approximately $112,000.

On December 31, 2007, the Partnership sold its limited partnership interest in Lake Forrest Estates II, Ltd. (“Lake Forest II”) to an affiliate of the Local General Partner for a sales price of $1,000. The sale resulted in a gain of approximately $150,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $149,000 at the date of the sale and the $1,000 cash received from the sale, which was recorded during the quarter ended March 31, 2008.

On December 31, 2007, the Partnership sold its limited partnership interest in Canterbury Apartments Limited Partnership (“Canterbury”) to an affiliate of the Local General Partner for a sales price of $1,000. The sale resulted in a loss of approximately $10,000 resulting from the write-off of the basis in the Local Partnership of approximately $11,000 at the date of sale and the $1,000 cash received from the sale, which was recorded during the quarter ended March 31, 2008. The sale also resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $2,000 as a result of write-off of fees owed by the Local Partnership to an affiliate of the General Partner.

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LIBERTY TAX CREDIT PLUS III L.P.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008

(Unaudited)

On December 31, 2007, the Partnership sold its limited partnership interest in Park Village Apartments, Ltd. (“Park Village”) to an affiliate of the Local General Partner for a sales price of $10. The sale resulted in a loss of approximately $94,000 resulting from the write-off of the basis in the Local Partnership of approximately $94,000 at the date of the sale, which was recorded during the quarter ended March 31, 2008. The sale also resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $8,000 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner.

On December 27, 2007, the Partnership sold its limited partnership interest in Brewery Renaissance Associates (“Brewery”) to the Local General Partner for a sales price of $150,000. The sale resulted in a gain of approximately $340,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $197,000 at the date of the sale and the $142,971 cash received from the sale. An adjustment to the gain of approximately $37,000 was recorded during the quarter ended March 31, 2008, resulting in an overall gain of approximately $377,000.

On December 27, 2007, the Partnership sold its limited partnership interest in Diamond Phase II Venture (“Diamond Street”), to the Local General Partner for a sales price of $20,000. The sale resulted in a gain of approximately $1,033,000 resulting from the write-off of the deficit basis in the Local Partnership at the date of the sale. An adjustment to the gain of approximately $(8,000) was recorded during the quarter ended March 31, 2008, resulting in an overall gain of approximately $1,025,000. The sale also resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $23,000 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner.

On December 27, 2007, the Partnership sold its limited partnership interest in Bookbindery Associates (“Bookbindery”) to the Local General Partner for a sales price of $20,000. The sale resulted in a loss of approximately $681,000 resulting from the write-off of the basis in the Local Partnership at the date of the sale. An adjustment to the loss of approximately $1,115,000, due to the Local Partnership recording a loss on impairment, was recorded during the quarter ended March 31, 2008, resulting in an overall gain of approximately $434,000. The sale also resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $23,000 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner.

On December 27, 2007, the Partnership sold its limited partnership interest in Dunlap School Venture (“Dunlap”) to the Local General Partner for a sales price of $20,000. The sale resulted in a loss of approximately $176,000 resulting from the write-off of the basis in the Local Partnership at the date of the sale. An adjustment to the loss of approximately $5,000 was recorded during the quarter ended March 31, 2008, resulting in an overall loss of approximately $171,000. The sale also resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $25,000 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner.

On December 27, 2007, the Partnership sold its limited partnership interest in Sartain School Venture (“Sartain”) to the Local General Partner for a sales price of $5,400. The sale resulted in a gain of approximately $3,418,000 resulting from the write-off of the deficit basis in the Local Partnership at the date of the sale. An adjustment to the gain of approximately $72,000 was recorded during the quarter ended March 31, 2008, resulting in an overall gain of approximately $3,490,000. The sale also resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $40,000 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner.

On December 7, 2007, the property and related assets and liabilities of Longfellow Height Apartments, L.P. (“Longfellow”) were sold to the Local General Partner for a sales price of $7,239,992. The Partnership received $325,000 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $6,915,000. The sale resulted in a gain of approximately $3,365,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An adjustment to the gain of approximately $(590,000) was recorded during the quarter ended March 31, 2008, resulting in an overall gain of approximately $2,775,000. The sale also resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $30,000 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner.

On December 3, 2007, the Partnership sold its limited partnership interest in Redemptorist Limited Partnership (“Redemptorist”) to the Local General Partner for a sales price of $988,082. The sale resulted in a gain of approximately $1,324,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $336,000 at the date of the sale and the $988,082 cash received from the sale. An adjustment to the gain of approximately $(3,785,000) was recorded during the quarter ended March 31, 2008, resulting in an overall loss of approximately $2,461,000.

On November 2, 2007, the Partnership sold its limited partnership interest in the Hamlet, Ltd. (“Hamlet”) to an affiliate of the Local General Partner for a sales price of $4,397,500. The sale resulted in a gain of approximately $5,649,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $1,249,000 at the date of the sale and the $4,400,000 cash received from the sale. An adjustment to the gain of approximately $850,000 was recorded during the quarter ended March 31, 2008, resulting in an overall gain of approximately $6,499,000. The sale also resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $10,000 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner.

On June 26, 2007, the property and the related assets and liabilities of Conifer James Street Associates (“Schopfer”) were sold to an unaffiliated third party purchaser for a sales price of $1,950,000 less the unpaid principal balance of the second mortgage, which totaled approximately $200,000. The Partnership did not receive any distribution from this sale after the repayment of the first mortgage, other liabilities and closing costs of approximately $1,750,000. The sale resulted in a loss of approximately $72,000 resulting from the write-off of the basis in the property at the date of the sale, which was recorded during the quarter ended September 30, 2007. An adjustment to the loss of approximately $(7,000) was recorded during the quarter ended September 30, 2008, resulting in an overall loss of $79,000. The sale also resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $18,000 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner.

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LIBERTY TAX CREDIT PLUS III L.P.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008

(Unaudited)

On June 15, 2007, the Partnership sold its limited partnership interest in Jefferson Limited Partnership (“Jefferson”) for a sales price of $1 plus 50% of debt forgiveness, which amounted to approximately $680,000 at the date of the sale and 50% of any resale profit in excess of the then mortgage principal if the property is sold on or before December 31, 2009. As of December 31, 2008, the Partnership has not received any cash from this sale. During the year ended March 31, 2007, in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), the Local Partnership deemed the building impaired and wrote it down to its fair value resulting in a loss of $520,303. The sale resulted in a gain of approximately $1,166,000 resulting from the write-off of the deficit basis in the Local Partnership at the date of the sale, which was recorded during the quarter ended September 30, 2007. An adjustment to the gain of approximately $(730,000) was recorded during the quarter ended March 31, 2008, resulting in an overall gain of approximately $436,000.

On June 10, 2007, the Partnership’s limited partnership interest in South Toledo Associates, Ltd. (“South Toledo”) was sold to the Local General Partner for a sales price of one dollar. The Partnership did not receive any cash from this sale. The sale resulted in a loss of approximately $82,000 resulting from the write-off of the basis in the property at the date of sale, which was recorded during the quarter ended September 30, 2007. An adjustment to the loss on sale of approximately $(8,000) was recorded during the quarter ended March 31, 2008, resulting in an overall loss of approximately $90,000. The sale also resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $43,000 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner.

On May 31, 2007, R.P.P. Limited Dividend Housing Association Limited Partnership (“River Place”) transferred the deed to the property and the related assets and liabilities to an affiliate of the Local General Partner for an assumption of bond debt and mortgage, which amounted to approximately $90,683,000 at the date of the sale. The Partnership did not receive any cash from this transaction. The transfer resulted in a net gain of approximately $81,154,000 resulting from the write-off of the deficit basis in the Local Partnership at the date of the transfer, which was recorded during the quarter ended December 31, 2007. Adjustments to the gain of approximately $(8,000) and $(13,000) were recorded during the quarter ended June 30, 2008 and December 31, 2008, respectively, resulting in overall gain of approximately $81,133,000.

On May 30, 2007, West 132nd Development Partnership (“Manhattan J”) sold its property and the related assets and liabilities to an unaffiliated third party purchaser for a sales price of $3,500,000. The Partnership received $1,954,413 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $1,548,000. The sale resulted in a gain of approximately $1,752,000 resulting from the write-off of the deficit basis in the property at the date of the sale, which was recognized during the quarter ended September 30, 2007. Adjustments to the gain of approximately $2,000, $(154,000), $11,000 and $(8,000) were recorded during the quarters ended December 31, 2007, March 31, 2008, September 30, 2008 and December 31, 2008, respectively, resulting in an overall gain of approximately $1,602,000.

On March 21, 2007, the Partnership sold its limited partnership interest in Puerto Rico Historic Zone, Limited Dividend Partnership (“San Justo”) to the Local General Partner for a sales price of $874,000. The sale resulted in a gain of approximately $3,309,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $2,440,000 at the date of the sale and the $869,305 cash received from the sale, which was recognized during the quarter ended June 30, 2007. An adjustment to the gain of approximately $(43,000) was recorded during the quarter ended September 30, 2007, resulting in an overall gain of approximately $3,266,000. The sale also resulted in a non-cash contribution from the Partnership to the Local General Partner of approximately $43,000 as a result of the write-off of fees owed by the Local General Partner to an affiliate of the General Partner.

On February 28, 2007, the Partnership sold its remaining limited partnership interest in Michigan Rural Housing Limited Partnership (“Michigan Rural”) to an affiliate of the Local General Partner. The Partnership received $10 from this sale. The sale resulted in a gain of approximately $503,000 resulting from the write-off of the deficit basis in the Local Partnership at the date of the sale. On May 26, 2005, the Partnership had sold 50% of its limited partnership interest in Michigan Rural to an affiliate of the Local General Partner for a sale price of $100,000. The Partnership received proceeds of $100,000 from this sale, which resulted in a gain of $100,000.

On February 7, 2007, the property and the related assets and liabilities of Cutler Canal III Associates, Ltd. (“Cutler Canal”) were sold to an affiliate of the General Partner for a sales price of $11,600,000. The Partnership received $3,624,195 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $7,976,000. The sale resulted in a gain of approximately $2,024,000 resulting from the write-off of the deficit basis in the property at the date of the sale, which was recognized during the quarter ended June 30, 2007. Adjustment to the gain of approximately $79,000 and $(111,000) were recorded during the quarters ended March 31, 2008 and December 31, 2008, respectively, resulting in an overall gain of approximately $2,172,000.

On January 30, 2007, the property and the related assets and liabilities of 1850 Second Avenue Associates, L.P. (“1850 Second Avenue”) were sold to an unaffiliated third party purchaser for a sales price of $25,000, which was used for the payment of closing costs. During the year ended March 31, 2007, in accordance with SFAS No. 144, the Partnership deemed the building impaired and wrote it down to its fair value resulting in a loss of $3,126,707. The sale resulted in a gain of approximately $252,000 resulting from the write-off of the deficit basis in the property at the date of the sale, which was recognized during the quarter ended September 30, 2007. Adjustments to the gain of approximately $(10,000) and $(300,000) were recorded during the quarter ended September 30, 2007 and March 31, 2008, respectively, resulting in an overall loss of approximately $59,000. The sale also resulted in a non-cash contribution from the Partnership of approximately $3,471,000 to the Local General Partner as a result of the write-off of advances owed by the Local Partnership to an affiliate of the General Partner.

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LIBERTY TAX CREDIT PLUS III L.P.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008

(Unaudited)

On January 26, 2007, the property and the related assets and liabilities of C.V. Bronx Associates, L.P./Gerard Gardens (“CV Bronx”) were sold to an unaffiliated third party purchaser for a sales price of $4,370,000. The Partnership received $3,228,153 as a distribution from this sale after the payment of other liabilities, closing costs and distribution to minority interests of approximately $742,000. The Partnership received an additional $550,000 in guaranteed deferred payments on June 5, 2008. The sale resulted in a gain of approximately $413,000 resulting from the write-off of the deficit basis in the property at the date of the sale, which was recognized during the quarter ended June 30, 2007. Adjustments to the gain of approximately $(53,000), $97,000, $(250,000) and $(21,000) were recorded during the quarters ended September 30, 2007, March 31, 2008, June 30, 2008 and September 30, 2008, respectively, resulting in an overall gain of approximately $186,000. The sale also resulted in a non-cash distribution to the Partnership from the Local General Partner of approximately $378,000 as a result of the write-off of loans owed to CV Bronx from an affiliate of the General Partner.

NOTE 5 – Assets Held for Sale

On December 31, 2008, the Partnership entered into an assignment and assumption agreement to sell its limited partnership interest in Broadway Townhouses L.P. (“Broadway”) to an unaffiliated third party purchaser for a sales price of $350,000. The sales documents have been executed, and the initial deposit funds of $100,000 were received by the Partnership during January 2009. The sale requires HUD approval. At this time the Partnership cannot determine when or if HUD will grant its approval. As of September 30, 2008, Broadway had property and equipment, at cost, of approximately $19,669,000, accumulated depreciation of approximately $10,285,000 and mortgage debt of approximately $10,193,000.

NOTE 6 – Discontinued Operations

The following table summarizes the financial position of the Local Partnerships that are classified as discontinued operations because the respective Local Partnerships were sold or classified as assets held for sale. As of December 31, 2008, Cutler Canal, Schopfer, Manhattan J, Forrest Ridge, Mountain View, Carriage Hill, Callaway Village, Holly Hill, Knob Hill, Mayfair, Chestnut, Indian Village, Citrus Meadows and Broadway were classified as discontinued operations in the consolidated balance sheets. As of March 31, 2008, Citrus Meadows, Williamsburg, Cutler Canal, Schopfer and Manhattan J were all classified as discontinued operations in the consolidated balance sheets.

Consolidated Balance Sheets:

	December 31, 2008			March 31, 2008

Assets
Property and equipment – less accumulated depreciation of $10,310,699 and $6,741,633, respectively	$	9,402,456		$	5,359,700
Cash and cash equivalents		295,371			254,059
Cash held in escrow		398,610			359,048
Deferred costs, net of accumulated amortization of $209,269 and $165,029		264,288			175,127
Other assets		312,965			79,388
Total assets	$	10,673,690		$	6,227,322

Liabilities
Mortgage notes payable	$	10,192,987		$	8,563,060
Accounts payable		0			120,515
Accrued interest payable		3,686,999			3,362,059
Security deposits payable		53,064			70,756
Due to local general partners and affiliates		0			2,302,877
Due to general partners and affiliates		2,500			42,500
Minority interest		(556,524	)		319,275
Total liabilities	$	13,379,026		$	14,781,042

The following table summarizes the results of operations of the Local Partnerships that are classified as discontinued operations. For the three and nine months ended December 31, 2008, Indian Village, Forrest Ridge, Mountain View, Carriage Hill, Callaway Village, Holly Hill, Knob Hill, Mayfair, Chestnut, Art Apartments, Hearthside, Williamsburg and Citrus Meadows, which were sold during the current year, and Broadway, which was classified as asset held for sale during the nine months ended December 31, 2008, were all classified as discontinued operations on the consolidated financial statements. For the three and nine months ended December 31, 2007, River Place, Manhattan J, Jefferson, South Toledo, Schopfer, Hamlet, Redemptorist, Longfellow, Sartain, Dunlap, Bookbindery, Diamond, Brewery, Foxcroft, River Oaks and Hamlet, which were sold during the nine months ended December 31, 2007, CV Bronx, Michigan Rural, 1850 Second Avenue, Cutler Canal and San Justo, which were sold during the year ended March 31, 2007, Driftwood, Park Village, Lake Forest, Canterbury and Williamsburg, which were classified as assets held for sale, and Indian Village, Forrest Ridge, Mountain View, Carriage Hill, Callaway Village, Holly Hill, Knob Hill, Mayfair, Chestnut, Art Apartments, Hearthside, Williamsburg, Citrus Meadows and Broadway, in order to present comparable results to the nine months ended December 31, 2008, were all classified as discontinued operations on the consolidated financial statements.

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LIBERTY TAX CREDIT PLUS III L.P.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008

(Unaudited)

Consolidated Statements of Discontinued Operations:

	Three Months Ended December 31,					Nine months Ended December 31,
	2008		2007*			2008		2007*

Revenues
Rental income	$	907,511	$	3,556,321		$	4,247,830	$	12,769,163
Other		33,563		114,588			95,895		531,635
Gain on sale of properties		10,490,369		14,301,125			14,844,594		104,931,626
Total revenue		11,431,443		17,972,034			19,188,319		118,232,424
Expenses
General and administrative		170,596		523,690			779,559		2,689,738
General and administrative-related parties (Note 2)		58,773		259,427			258,351		827,823
Repairs and maintenance		208,869		952,505			985,253		3,540,029
Operating		75,095		314,090			365,587		1,421,444
Real estate taxes		69,584		294,711			348,792		956,232
Insurance		59,897		203,138			275,553		916,995
Interest		386,074		1,142,890			1,554,795		5,711,206
Depreciation and amortization		119,231		727,309			741,964		3,315,047
Total expenses		1,148,119		4,417,760			5,309,854		19,378,514
Income before minority interest		10,283,324		13,554,274			13,878,465		98,853,910
Minority interest in loss (income) of subsidiaries from discontinued operations		1,147,093		(2,451,436	)		1,650,821		(1,392,764	)
Total income from discontinued operations	$	11,430,417	$	11,102,838		$	15,529,286	$	97,461,146
Income – limited partners from discontinued operations	$	11,316,113	$	10,991,810		$	15,373,993	$	96,486,535
Number of BACs outstanding		139,101.5		139,101.5			139,101.5		139,101.5
Income from discontinued operations per BAC	$	81.35	$	79.02		$	110.52	$	693.64


* Reclassified for comparative purposes.

Cash Flows from Discontinued Operations:

	Nine months Ended December 31,
	2008			2007*

Net cash (used in) provided by operating activities	$	(203,633	)	$	73,948,858
Net cash provided by investing activities	$	5,110,467		$	23,825,763
Net cash used in financing activities	$	(5,309,143	)	$	(91,768,378	)
* Reclassified for comparative purposes.

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LIBERTY TAX CREDIT PLUS III L.P.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008

(Unaudited)

NOTE 7 – Commitments and Contingencies

The following disclosures include changes and/or additions to disclosures regarding the subsidiary partnerships which were included in the Partnership’s Annual Report on Form 10-K for the year ended March 31, 2008.

a) Subsidiary Partnership – Going Concerns and Uncertainties

Williamsburg Residential II, L.P. (“Williamsburg”)

Williamsburg was sold on May 9, 2008 (see Note 4). Prior to the sale, the financial statements of Williamsburg had previously been prepared assuming that Williamsburg would continue as a going concern. Williamsburg was subject to a foreclosure action by the mortgage lender which raised substantial doubt about its ability to continue as a going concern. The financial statements of Williamsburg did not include any adjustments that might result from the outcome of this uncertainty.

During November 2007, Williamsburg discontinued payment of required principal and interest payments to the mortgage holder and the mortgage lender notified Williamsburg that it had failed to make required payments and the mortgage loan was due. During December 2007, a real estate foreclosure action was initiated by the mortgage lender and agreed to among Williamsburg and the mortgage lender which required the sale of the property and equipment securing the mortgage loan. In addition, a receiver was appointed by the court to provide management of the property until sale.

The Partnership’s investment in Williamsburg has been written down to $0 by prior years’ losses and the minority interest balance was approximately $0 and $319,000 at December 31, 2008 and March 31, 2008, respectively. Williamsburg’s net loss after minority interest amounted to approximately $15,000 (excluding gain on sale of approximately $459,000) and $28,000 for the nine months ended December 31, 2008 and 2007, respectively.

Citrus Meadows Apartments, LTD. (“Citrus Meadows”)

On December 31, 2008, the Partnership sold its limited partnership interest in Citrus Meadows to an unaffiliated third party purchaser (see Note 4). Prior to the sale, the financial statements of Citrus Meadows had previously been prepared assuming that it would continue as a going concern. Citrus Meadows incurred a net loss of approximately $237,000 (excluding gain on sale of approximately $8,235,000) during the nine months ended September 30, 2008 and has incurred a Partner’s deficit of $7,692,730 since inception. Current economic conditions had limited the ability of Citrus Meadows to increase tenant occupancy. In response to economic conditions, management had reduced expenses and increased advertising to attract new tenants. Also, in 2006, Citrus Meadows’ status as a tax credit project expired allowing it to provide rental opportunities to a wider range of possible tenants through the use of market value rents. Citrus Meadows had the ability to rent up to 60% of the 200 units to non-income restricted tenants. Management had secured several new move-in tenants for the 2008 fiscal year. The Local General Partner had funded the deficit. Because it was unclear whether Citrus Meadows would be successful in accomplishing these objectives, there was uncertainty about Citrus Meadow’s ability to continue as a going concern. The financial statements did not include any adjustments that might have been necessary should Citrus Meadows not be able to continue as a going concern. The Partnership’s investment in Citrus Meadows had been written down to zero by prior years’ losses and the minority interest balance was $0 at both December 31, 2008 and March 31, 2008. The net loss after minority interest amounted to approximately $237,000 (excluding gain on sale of approximately $8,235,000) and $374,000 for the nine months ended December 31, 2008 and 2007, respectively.

b) Uninsured Cash and Cash Equivalents

The Partnership maintains its cash and cash equivalents in various banks. Accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000.

c) Cash Distributions

Cash distributions from the Local Partnerships to the Partnership are restricted by the provisions of the respective Local Partnership Agreements and/or the U.S. Department of Housing and Urban Development (“HUD”). Such cash distributions are typically made from surplus cash flow.

d) Tax Credits

The Tax Credit and Compliance Periods have expired with each Local Partnership having utilized its full Tax Credits without recapture.

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LIBERTY TAX CREDIT PLUS III L.P.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008

(Unaudited)

e) Other

The Partnership is subject to the risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions generally, and due to the fact that the Partnership is in the final stages of liquidating its portfolio, the portfolio is no longer geographically diverse. There are also substantial risks associated with owning Properties receiving government assistance, such as the possibility that Congress may not appropriate funds to enable HUD to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owner’s equity contribution. The Partnership cannot sell or substantially liquidate its investments in Subsidiary Partnerships during the period that the subsidy agreements are in existence without HUD’s approval. Furthermore, there may not be market demand for apartments at full market rents when the rental assistance contracts expire.

In order for certain Subsidiaries to qualify for the Section 421A Program and the Inclusionary Zoning Program, they are subject to certain requirements by local authorities as to the level of rent that may be charged to tenants, the tenants’ incomes, the obligation to operate the Property in accordance with rent stabilization guidelines, and restrictions on the rate at which housing units may be released from such guidelines.

Also, certain Subsidiary Partnerships obtained grants from local authorities to fund construction costs of the Properties and in order to qualify have been required to maintain the low-income nature of the Property, among other provisions.

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

Liquidity and Capital Resources

The Partnership’s original capital was invested in sixty-two Local Partnerships. As of December 31, 2008, the Partnership has an interest in two remaining Local Partnerships. In addition, the Partnership has entered into a purchase and sale agreement to sell its limited partnership interest in one Local Partnership (see Note 5). The Partnership is currently in the process of disposing of all of its investments. It is anticipated that the completion of this process will take less than one year. Once all remaining investments have been sold, a cash distribution, in accordance with the provisions of the Partnership Agreement, is expected to be made from available cash less costs incurred to terminate the Partnership.

Off-Balance Sheet Arrangements

The Partnership has no off-balance sheet arrangements.

Tabular Disclosure of Contractual Obligations

The Partnership disclosed in Item 8, Note 7 of the Partnership’s Annual Report on Form 10-K for the year ended March 31, 2008, the Partnership’s commitments to make future payments under its debt agreements and other contractual obligations. There are no material changes to such disclosure or amounts as of December 31, 2008.

Short-Term

The Partnership’s primary sources of funds include: (i) working capital reserves; (ii) interest earned on the working capital reserves; (iii) cash distributions from operations of the Local Partnerships; and (iv) sales proceeds and distributions. Such funds are available to meet the obligations of the Partnership. During the nine months ended December 31, 2008 and 2007, distributions from operations of the Local Partnerships amounted to approximately $16,000 and $33,000, respectively. In addition, during the nine months ended December 31, 2008 and 2007, distributions from the sales of properties and their related assets and liabilities amounted to approximately $37,000 and $2,049,000. Additionally, during the nine months ended December 31, 2008 and 2007, the Partnership received approximately $315,000 and $6,958,000 of proceeds from the sale of limited partnership interests. The Partnership does not anticipate being able to make distributions sufficient to return to BACs holders their original capital contributions.

During the nine months ended December 31, 2008, cash and cash equivalents of the Partnership and its consolidated Local Partnerships decreased approximately $852,000. This decrease was due to repayment of mortgage notes of approximately $(2,643,000), acquisitions of property and equipment of approximately ($14,000), a decrease in capitalization of consolidated subsidiaries attributable to minority interest of approximately ($122,000), an increase in cash held in escrow relating to investing activities of approximately $(84,000) and costs paid related to the sale of properties of approximately $(727,000), which exceeded cash provided by operating activities of approximately ($889,000), proceeds from the sale of properties of approximately $(1,837,000) and a decrease in deferred costs of approximately $(12,000) Included in the adjustments to reconcile the net income to net cash provided by operating activities are depreciation and amortization of approximately $829,000 and gain on sale of properties of approximately $14,845,000.

The Partnership has a working capital reserve of approximately $7,273,000 at December 31, 2008.

Total expenses for the three and nine months ended December 31, 2008 and 2007, excluding depreciation and amortization and general and administrative–related parties, totaled $226,180 and $289,096 and $686,128 and $845,334, respectively.

Accounts payable and other liabilities as of December 31, 2008 and March 31, 2008 were $254,987 and $1,538,747, respectively. Accounts payable are short term liabilities which are expected to be paid from operating cash flows, working capital balances at the Local Partnership level, Local General Partner advances and, in certain circumstances, advances from the Partnership. The Partnership believes it (and the applicable Local Partnerships) has sufficient liquidity and ability to generate cash and to meet existing and known or reasonably likely future cash requirements over both the short and long term. In addition, accounts payable from discontinued operations as of December 31, 2008 and March 31, 2008, totaled $0 and $120,515, respectively.

Accrued interest payable as of December 31, 2008 and March 31, 2008 was $0 and $6,415,369, respectively. Accrued interest payable represents the accrued interest on all mortgage loans, which include primary and secondary loans. Certain secondary loans have provisions such that interest is accrued but not payable until a future date. The Partnership anticipates the payment of accrued interest on the secondary loans (which make up the majority of the accrued interest payable amount and which have been accumulating since the Partnership’s investment in the respective Local Partnership) will be made from future refinancings or sales proceeds of the respective Local Partnerships. Furthermore, each Local Partnership’s mortgage notes are collateralized by the land and buildings of the respective Local Partnership, and are without further recourse to the Partnership. In addition, accrued interest payable from discontinued operations, as of December 31, 2008 and March 31, 2008, totaled $3,686,999 and $3,362,059, respectively.

Partnership management fees owed to the General Partners amounting to approximately $191,000 and $2,247,000 were accrued and unpaid at December 31, 2008 and March 31, 2008, respectively. During the quarter ended December 31, 2008, management deemed the unpaid partnership management fees related to sold properties uncollectible and wrote off approximately $2,139,000, resulting in a non-cash General Partner contribution of the same amount.

For a discussion of contingencies affecting certain Local Partnerships, see Item 1, Note 7 to the financial statements.

The Local Partnerships are impacted by inflation in several ways. Inflation allows for increases in rental rates generally to reflect the impact of higher operating and replacement costs. Furthermore, inflation generally does not impact the fixed long-term financing under which real property investments were purchased. Inflation also affects the Local Partnerships adversely by increasing operating costs, such as fuel, utilities, and labor. Since revenues from sales of assets are driven by market conditions, inflation has little impact on sales.

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Management is not aware of any trends or events, commitments or uncertainties, which have not otherwise been disclosed, that will or are likely to impact liquidity in a material way. Management believes the only impact would be from laws that have not yet been adopted. The Partnership is in the final stages of liquidating its portfolio, and as such, the portfolio is no longer geographically diverse.

Fair Value Measurements

Level 1:

Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:

Level 3:

Unobservable inputs that reflect our own assumptions.

	At December 31, 2008						Fair Value Measurements at December 31, 2008 using Fair Value Hierarchy
	Cost			Fair Value			Level 1			Level 2			Level 3
LIABILITIES:
Mortgage notes		$	10,192,987		$	10,192,987		$	0		$	0		$	10,192,987

Critical Accounting Policies and Estimates

In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements. The summary should be read in conjunction with the more complete discussion of the Company’s accounting policies included in Item 8, Note 2 to the consolidated financial statements which are included in the Partnership’s Annual Report on Form 10-K for the year ended March 31, 2008.

Property and Equipment

Property and equipment to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring such property and equipment. The cost of property and equipment is depreciated over their estimated useful lives using accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. The Partnership complies with Statement of Financial Accounting Standards No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”). A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the Property on an undiscounted basis are below depreciated cost. Property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the Property is considered to be impaired and the depreciated cost exceeds estimated fair value. Through December 31, 2008, the Partnership has recorded approximately $30,293,000 as a loss on impairment of assets.

In accordance with SFAS No. 144, the results of discontinued operations are reported as a separate component of income before extraordinary items on the consolidated statements of operations. Discontinued operations include the results of operations and any gain or loss recognized for Local Partnerships that have been disposed of or are held for sale. A gain or loss recognized on the disposal is disclosed in the notes to the financial statements. Adjustments to amounts previously reported in operations that are directly related to the disposal of a Local Partnership are reclassified in the current period as discontinued operations for comparability purposes. Assets and liabilities of a Local Partnership that are classified as held for sale are presented separately in the asset and liability sections, respectively, of the consolidated balance sheets.

- 17 -

At the time management commits to a plan to dispose of assets, said assets are adjusted to the lower of carrying amount or fair value less costs to sell. Such assets would be classified as property and equipment-held for sale and are not depreciated. Property and equipment that are held for sale are included in discontinued operations. There is one Local Partnership whose assets are classified as property and equipment-held for sale as of December 31, 2008 (see Item 1, Note 5).

Revenue Recognition

Rental income is earned primarily under standard residential operating leases and is typically due the first day of each month, but can vary by property due to the terms of the tenant leases. Rental income is recognized when earned and as rents become due and charged to tenants’ accounts receivable if not received by the due date. Rental payments received in advance of the due date are deferred until earned. Rental subsidies are recognized as rental income during the month in which it is earned.

Other revenues are recorded when earned and consist of the following items: Interest income earned on cash and cash equivalent balances and cash held in escrow balances, income from forfeited security deposits, late charges, laundry and vending income, and other rental related miscellaneous items.

Income Taxes

No provision has been made for income taxes in the accompanying consolidated financial statements since such taxes, if any, are the responsibility of the individual partners. For income tax purposes, the Partnership has a fiscal year ending December 31.

Results of Operations

Results of operations for the three and nine months ended December 31, 2008 and 2007 consisted of the results of the Partnership’s investment in one remaining Local Partnership, excluding the results of its discontinued operations which are not reflected in the following discussion (see Item 1, Note 6).

Rental income increased approximately 17% and 3% for the three and nine months ended December 31, 2008 as compared to the corresponding periods in 2007, due to an increase in tenant based rent subsidy at the one continuing Local Partnership.

Other income decreased approximately $146,000 and $362,000 for the three and nine months ended December 31, 2008 as compared to the corresponding periods in 2007, primarily due to a decrease in interest income earned at the Partnership level due to a higher cash balance existing in the prior year resulting from the sale of properties.

Total expenses, excluding general and administrative expenses, general and administrative-related parties and taxes, consisted of a decrease of less than 1% and approximately 2% for the three and nine months ended December 31, 2008 as compared to the corresponding periods in 2007.

General and administrative decreased approximately $38,000 and $159,000 for the three and nine months ended December 31, 2008 as compared to the corresponding periods in 2007, primarily due to lower legal fees, lower auditing costs and lower printing costs due to higher sales activity in the previous year at the Partnership level partially offset by an increase in legal expense, workers compensation and medical insurance expense at the one continuing Local Partnership.

General and administrative-related parties expenses decreased approximately $304,000 and $578,000 for the three and nine months ended December 31, 2008 as compared to the corresponding periods in 2007, primarily due to a decrease in partnership management fees resulting from the sale of properties and a decrease in expense reimbursements at the Partnership level.

Taxes decreased approximately $14,000 for the three months ended December 31, 2008 as compared to the corresponding period in 2007, primarily due to an underaccrual in the second quarter of the prior year at the one continuing Local Partnership.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The Partnership has mortgage notes that are payable in aggregate monthly installments including principal and interest at rates varying from 5% to 9.25% per annum. The Partnership does not believe there is a material risk associated with the various interest rates associated with the mortgage notes as the majority of the Local Partnership mortgage notes have fixed rates. The Partnership disclosed in Item 8, Note 3 to consolidated financial statements in the Partnership’s Annual Report on Form 10-K for the year ended March 31, 2008, as well as in Item 2, the fair value of the mortgage notes payable. There are no material changes to such disclosure or amounts as of December 31, 2008.

The Partnership does not have any other market risk sensitive instruments.

Item 4T. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer and Chief Financial Officer of Related Credit Properties III, L.P. and Liberty GP III, Inc., the general partners of the Partnership, have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) as of the end of the period covered by this report. Based on such evaluation, such officers have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.

- 18 -

(b) Management’s Annual Report on Internal Control over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). In evaluating the Partnership’s internal control over financial reporting, management has adopted the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring organizations of the Treadway Commission (the “COSO Framework”). Under the supervision and with the participation of the Partnership’s management, including the Chief Executive Officer and Chief Financial Officer of the General Partner, the Partnership conducted an evaluation of the effectiveness of its internal control over financial reporting as of March 31, 2008. The Partnership’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Partnership are being made only in accordance with authorizations of management and directors of the Partnership; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Partnership’s assets that could have a material effect on the financial statements. However, because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on management’s evaluation under the COSO Framework, it has concluded that the Partnership’s internal control over financial reporting, was, as of March 31, 2008, (1) effective at the Partnership level, in that they provide reasonable assurance that information required to be disclosed by the Partnership in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (2) ineffective at the subsidiary level due to certain control deficiencies noted in the audit reports for such subsidiaries. Management will attempt to cause the Local General Partner’s to remedy such deficiencies; however, the General Partner does not have control over the internal controls at the subsidiary level. Management believes they have sufficient controls at the Partnership level to mitigate these deficiencies, and such deficiencies do not have a material impact on the consolidated financial statements.

The Partnership’s Annual Report on Form 10-K did not include an attestation report of the Partnership’s registered public accounting firm regarding internal control over financial reporting. The Partnership’s internal control over financial reporting was not subject to attestation by the Partnership’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Partnership to provide only this report.

(c) Changes in Internal Controls over Financial Reporting. Except as noted in (b) above, during the period ended December 31, 2008, there were no changes in the Partnership’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

- 19 -

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings - None

Item 1A.	Risk Factors - No Changes

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds - None

Item 3.	Defaults Upon Senior Securities - None

Item 4.	Submission of Matters to a Vote of Security Holders - None

Item 5.	Other Information - None

Item 6.	Exhibits

	31.1	Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a)

	31.2	Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a)

	32.1	Certification Pursuant to Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Title 18 of the United States Code (18 U.S.C. 1350)

- 20 -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LIBERTY TAX CREDIT PLUS III L.P.

(Registrant)

		By:	RELATED CREDIT PROPERTIES III L.P.,
			a General Partner

			By:	Related Credit Properties III Inc.,
				its general partner
Date:	February 12, 2009
				By:	/s/ Robert L. Levy
					Robert L. Levy
					Chief Financial Officer, Principal Accounting Officer and Director
Date:	February 12, 2009
				By:	/s/ Andrew J. Weil
					Andrew J. Weil
					President, Chief Executive Officer


		By:	LIBERTY GP III, INC.,
			a General Partner
Date:	February 12, 2009
			By:	/s/ Robert L. Levy
				Robert L. Levy
				Chief Financial Officer, Principal Accounting Officer and Director
Date:	February 12, 2009
			By:	/s/ Andrew J. Weil
				Andrew J. Weil
				President, Chief Executive Officer

Filing Compare · LIBERTY TAX CREDIT PLUS III LP