Bava Kamma 9B

אילימא שליש ביתו, אלא מעתה, אי איתרמי ליה תלתא מצותא ⁠– ליתיב לכוליה ביתיה?!

If we say it means that one should spend up to 1/3rd of his estate to perform a mitzva, but if that is so, and if it happened to him that he became obligated in 3 mitzvot at the same time, should he give his entire estate away in order to fulfill those mitzvot? One is certainly not required to do so.

אלא אמר רבי זירא: בהידור מצוה ⁠– עד שליש במצוה.

Rather, what R' Zeira said is that for the embellishment of the performance of a mitzva, e.g., to purchase a more beautiful item used in the performance of a mitzva, one should spend up to 1/3rd more than the cost of the standard item used to perform the mitzva.

בעי רב אשי: שליש מלגיו, או שליש מלבר? תיקו.

Rav Ashi raises a dilemma: How is this 1/3rd calculated? Is it 1/3rd from within, i.e., he calculates the cost of a standard item, adds 1/3rd of that value, and spends the total on purchasing a more beautiful item; or is it 1/3rd from without, i.e., 1/3rd of the sum he ultimately spends should be the additional sum added in order to purchase a more beautiful item? The Talmud concludes: The dilemma should stand unresolved.

במערבא אמרי משמיה דרבי זירא: עד שליש ⁠– משלו. מכאן ואילך ⁠– משל הקדוש ברוך הוא.

In the West, Eretz Yisrael, they say in the name of R' Zeira: Of the money one spends on purchasing a more beautiful item to perform a mitzva, up to 1/3rd more than the cost of a standard item comes from his own finances, but from this point forward, any additional sum spent on purchasing a more beautiful item comes from the largesse of God i.e., God will reimburse him for spending that additional sum.