I'm still going to respectfully disagree.  The scope changed significantly as the law changed from pre-76 to pre-86 to post-86.

In the same clauses you highlighted, the Pre-76 scope of "otherwise allowable" referred to "this chapter", meaning Chapter 1 - Normal taxes and Surtaxes a.k.a. IRC 1-1400.  So IRC 163 pre-76 defers to other limitations which may exist somewhere else in the income tax code.  Likewise, the carryover provision referred back to "the first sentence of this paragraph", which contained the language referring to the rest of the income tax code.

The TRA76 update moved things around a bit but still uses the "Chapter 1" scope for allowable but kicks the carryover down to the (3)(E) definition of "disallowed investment interest."  I think I'm following the same bouncing ball as you are based on your use of bold.  But now we've flipped the language to identify interest "not allowable" and then specifically limit the scope of "not allowable" to the limitation in (d)(1).  But remember, (d)(1) is a limit imposed AFTER already imposing other restrictions which cause interest to be disallowed by some other provision in IRC 1-1400.

Then TRA86 "simplified" things.  They removed the term "otherwise allowable" so we no longer defer to other IRC 1-1400 limitations first.  IMO this is a restructuring of the order of operations.  Now IRC 163 limits us to net investment income.  Period.  The carryover is defined on that basis alone.  (d)(2) looks back to (d)(1) and (d)(1) no longer looks to the entire chapter, it references the net investment income definition in (d)(4).  The scope of (d)(4) is "this subsection", meaning IRC 163(d).  So it's all self-contained.  Once we've calculated it, then we determine if we can use it based on standard vs. itemized deductions.  But that determination doesn't retroactively recalculate the amount allowed because that's all done independently in IRC 163(d).

All that said, like you, I don't have a dog in this race and don't need to take a tax position on a return.  I could easily be wrong (wouldn't be the first time) but it makes sense to me.  Sounds like the PTO calculations take the same approach and support my conclusion (which still doesn't necessarily make it right!)

I have missed you, my friend.  It's a true pleasure to have you back in the community and I'm particularly happy to have you in a safer geographic location.

Rick

PS:  Your avatar reminds me . . . I thought the Obi-Wan series sucked, but Mandalorian is awesome.  Boba Fett was okay, too slow at first but then good once it became Mandalorian season 2.5. 🙂