On a recent ride, my 1985 K100 rear brake fluid drained out. Advice on how to troubleshoot / fix?

I notice that the boot on the master cylinder has disintegrated (pic). I'm also curious that there's a second nipple on the reservoir - is that supposed to be like that, or does that connect to something? (See pic). 

I see you can buy a Rebuild Kit like this - is that what I should get? 

I also have a 1985 parts bike that was sitting in a barn for years, assuming this is something I shouldn't fix with parts from that since rubber is a key component of this.

Any advice welcome.

Take it apart and inspect/clean it before spending any money.

http://www.kbikeparts.com/classickbikes.com/ckb.tech/0.ckb.tech.files/master.leak/master.leak.htm


The second nipple on the reservoir is supposed to be capped like yours is.  I have no idea why it's there.

Yours looks to me that the unused port has lost its cap. Here's an image from Euro Motoelectric of a similar reservoir with its right-side port capped.

Once you get the master cylinder up and running fill the rubber boot with heavy silicone grease. The grease helps stop the boot from degrading, and stops the ingress of water and road crap. In OZ I can get spare boots $4.00 AU from a local shop that specializes in sleeving brake cylinders and calipers.
Regards Martin.

Laitch is right. A bleed nipple cap will do the job just as well as (a) there's no pressure in the reservoir (b) the material the cap is made of is designed to cope with hydraulic fluid.