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So I brake fluid was leaking out of the top front of the master cylinder. The cap gasket looked to be in pretty bad shape, the gasket is completely flat.
I ordered a new cap gasket and it has 2 clear protrusions for each reservoir, but I don't know which side is supposed to go down. Is the side of the gasket that protrudes outward supposed to face down into each reservoir or should it face upward?
Depends on the type of gasket I have seen some made slightly different.
Generally if you look at one side and you have two recessed dimples in the middle of the rubber and the other side has a raised flat center I personally have always used the flat center facing down towards the fluid with no problems.
Poke the gasket, it ballons out in one direction doesn't it? The direction it balloons out should be pointing down. That's so when the pads and shoes wear and more fluid leaves the master, the gasket can balloon down to give it more fluid, while still keeping the air out of the reservoir.