There is no question carryforward is a legislative grace as with any deduction.  However, statutory language is very precise and deliberate in its choice of words.  As mentioned, "allowed" and "allowable" are never used interchangeably.  That is why these operative words are used in some provisions and not the others.  If Congress had intended for the amount otherwise allowable to be taken into account, like it does in other provisions, they would have used "allowable" in paragraph (1).

If we look at the legislative history, §163(d) went through two rounds of rewrite.  In both of the former versions, first before the Tax Reform Act of 1976 and then the Tax Reform Act of 1986, carryover was determined by reference to deduction "otherwise allowable".  This all changed with the Tax Reform Act of 1986 and the same texts we see today have survived all these years.

As a point of reference, here's how the pertinent parts of the subsection read prior to the Tax Reform Act of 1976 (P.L. 94-455) [emphasis added] -

(d) Limitation on Interest on Investment Indebtedness.—

(1) In general.—In the case of a taxpayer other than a corporation, the amount of investment interest (as defined in paragraph (3)(D)) otherwise allowable as a deduction under this chapter shall be limited, in the following order, to—

(A) $25,000 ($12,500, in the case of a separate return by a married individual), plus

(B) the amount of the net investment income (as defined in paragraph (3)(A)), plus the amount (if any) by which the deductions allowable under this section (determined without regard to this subsection) and sections 162, 164(a)(1) or (2), or 212 attributable to property of the taxpayer subject to a net lease exceeds the rental income produced by such property for the taxable year, plus

(C) an amount equal to the amount by which the net long-term capital gain exceeds the net short-term capital loss for the taxable year, plus

(D) one-half of the amount by which investment interest exceeds the sum of the amounts described in subparagraphs (A), (B), and (C).

In the case of a trust, the $25,000 amount specified in subparagraph (A) and in paragraph (2)(A) shall be zero. In determining the amount described in subparagraph (C), only gains and losses attributable to the disposition of property held for investment shall be taken into account.

(2) Carryover of disallowed investment interest.—

(A) In general.—The amount of disallowed investment interest for any taxable year shall be treated as investment interest paid or accrued in the succeeding taxable year. The amount of the interest so treated which is allowable as a deduction by reason of the first sentence of this paragraph for any taxable year shall not exceed one-half of the amount by which—

(i) the net investment income for such taxable year plus $25,000, exceeds

(ii) the investment interest paid or accrued during such taxable year (determined without regard to this paragraph) or $25,000, whichever is greater.

The subsection was then amended by the Tax Reform Act of 1976 (P.L. 94-455) but "otherwise allowable" remained the operative word [emphasis added]:

(d) Limitation on Interest on Investment Indebtedness.—

(1) In general.—In the case of a taxpayer other than a corporation, the amount of investment interest (as defined in paragraph (3)(D)) otherwise allowable as a deduction under this chapter shall be limited, in the following order, to—

(A) $10,000 ($5,000, in the case of a separate return by a married individual), plus

(B) the amount of the net investment income (as defined in paragraph (3)(A)), plus the amount (if any) by which the deductions allowable under this section (determined without regard to this subsection) and sections 162, 164(a)(1) or (2), or 212 attributable to property of the taxpayer subject to a net lease exceeds the rental income produced by such property for the taxable year.

In the case of a trust, the $10,000 amount specified in subparagraph (A) shall be zero.

(2) Carryover of disallowed investment interest.—The amount of disallowed investment interest for any taxable year shall be treated as investment interest paid or accrued in the succeeding taxable year.

(3) Definitions.—For purposes of this subsection—

(A) Net investment income.—The term “net investment income” means the excess of investment income over investment expenses. If the taxpayer has investment interest for the taxable year to which this subsection (as in effect before the Tax Reform Act of 1976) applies, the amount of the net investment income taken into account under this subsection shall be the amount of such income (determined without regard to this sentence) multiplied by a fraction the numerator of which is the excess of the investment interest for the taxable year over the investment interest to which such prior provision applies, and the denominator of which is the investment interest for the taxable year.

(B) Investment income.—The term “investment income” means—

(i) the gross income from interest, dividends, rents, and royalties,

(ii) the net short-term capital gain attributable to the disposition of property held for investment, and

(iii) any amount treated under sections 1245, 1250, and 1254 as ordinary income,

but only to the extent such income, gain, and amounts are not derived from the conduct of a trade or business.

(C) Investment expenses.—The term “investment expenses” means the deductions allowable under sections 162, 164(a)(1) or (2), 166, 167, 171, 212, or 611 directly connected with the production of investment income. For purposes of this subparagraph, the deduction allowable under section 167 with respect to any property may be treated as the amount which would have been allowable had the taxpayer depreciated the property under the straight line method for each taxable year of its useful life for which the taxpayer has held the property, and the deduction allowable under section 611 with respect to any property may be treated as the amount which would have been allowable had the taxpayer determined the deduction under section 611 without regard to section 613 for each taxable year for which the taxpayer has held the property.

(D) Investment interest.—

(i) In general.—The term “investment interest” means interest paid or accrued on indebtedness incurred or continued to purchase or carry property held for investment.

(ii) Certain expenses incurred in connection with short sales.—For purposes of clause (i), the term “interest” includes any amount allowable as a deduction in connection with personal property used in a short sale.

(E) Disallowed investment interest.—The term “disallowed investment interest” means with respect to any taxable year, the amount not allowable as a deduction, solely by reason of the limitation in paragraph (1).

In contrast, this is how the subsection reads [emphasis added] after the amendments made with the Tax Reform Act of 1986, which changed the operative word from "otherwise allowable" to "allowed".  If the Congress had intended to preserve the manner in which carryovers were determined by reference to deduction "otherwise allowable", there would have been no reason to make that change:

(d) Limitation on investment interest

1) In general
In the case of a taxpayer other than a corporation, the amount allowed as a deduction under this chapter for investment interest  for any taxable year shall not exceed the net investment income  of the taxpayer for the taxable year.

(2) Carryforward of disallowed interest
The amount not allowed as a deduction for any taxable year by reason of paragraph (1) shall be treated as investment interest  paid or accrued by the taxpayer in the succeeding taxable year.

(3) Investment interestFor purposes of this subsection—
(A) In general
The term “investment interest ” means any interest  allowable as a deduction under this chapter (determined without regard to paragraph (1)) which is paid or accrued on indebtedness properly allocable to property held for investment .
(B) ExceptionsThe term “investment interest ” shall not include—
(i) any qualified residence interest  (as defined in subsection (h)(3)), or
(ii) any interest  which is taken into account under section 469 in computing income or loss from a passive activity  of the taxpayer.
(C) Personal property used in short sale
For purposes of this paragraph, the term “interest ” includes any amount allowable as a deduction in connection with personal property used in a short sale.

Unlike some other subsections of §163, the Secretary is not delegated the authority to prescribe regulations for subsection (d).  This is unlike §170 under which the Secretary is granted authority to prescribe regulations and §1.170A-10 was promulgated with elaborate examples to govern the application of carryover, including its treatment during taxable years a taxpayer elects for standard deduction.

Since §163(d) and §170(d) were both enacted as part of the Tax Reform Act of 1969 (P.L. 91-172), it would be conceivable that the rules for carryover would have been modeled after each other if the Congress had intended for similar treatments.  The evolution of the legislative language used in §163(d), which changed from "otherwise allowable" to "allowed" as outlined above only further reinforces the idea the Congress had intended for the carryover of investment interest to be managed differently from that of charitable contributions.

I do not have a preconceived notion of how the carryover should or should not apply and am only interpreting this based on the statutory language and the legislative history, given the absence of regulations and the lack of case law on this.  I am always open to learning if someone could share the technical bases that could support a different interpretation.

Just my two-cents that probably are not worth the space my mumble jumble has taken up. 😅