I have an 85 ford f-150, just had a new/used transfer case hooked up front drive line not connected, does not shift put of second gear when in drive and loses power to the rear wheels, any suggestions?

 

Hopefully some of this will answer some of your concerns.

Ford transmissions back then when placed in second gear (D2) were with reduced power to allow less skidding when starting off in ice or snow. They did not up shift unless RPM went way up.
There may not be anything wrong with the trans just make sure if you decide to change the fluid and filter, that you use Ford TYPE F fluid.
The friction discs did not take very well to any other fluid and self destructed.

 

From what I recall, If you have a three speed, it is a C-6 transmission. After 1977, Ford changed the fluid requirement for a C-6 to Dexron. That is now discontinued. Dex/ Mercon is what should be used in your 85. Same would apply to the AOD transmission which is a 4spd/overdrive transmission. A common problem with a C-6 was the vacuum modulator diaphram to blow, allowing ATF to get sucked up into the intake and burned. You can easily check it by pulling off the vacuum line to the modulator (which is a small can with a vacuum line attached located on the rear of the transmission), if fluid comes out, it is bad. It won't upshift or if the fluid gets too low, slippage and engagement issues can be expected. If you have an overdrive unit, there is no modulator but linkage instead. It was also common for the linkage bushing to wear and fall off the throttle body or carb. The transmission won't upshift.
If you need to add fluid, the original fluid type should be engraved onto the dip stick.