Assuming you held the short position open for more than 46 days, you are correct in that you can add the dividends you paid to your cost basis. To make a manual adjustment to your cost basis, go back to the Investments and Savings section (TurboTax online) or Investment Income (TurboTax CD/download) and select Revisit/Update. Find the short position you want to adjust, and select Edit.
If you are using TurboTax online, you will see another screen with a pencil icon near the trash can icon. Select the pencil icon, and don't make any adjustments--just select Continue-- until you get to the screen, Adjust your cost basis to ensure best outcome. Then select I found my adjusted cost basis and enter your adjusted cost basis. If your basis does not update, then go back to the screen containing your original cost basis and adjust it there. Keep your records to support the adjustment you made.
In TurboTax CD/download, the process is essentially the same. However, when you see the screen, Select any less common adjustments that apply, select the last option. Follow the instructions and make your adjustment. Your basis will be updated to reflect the dividends you paid.
@MAC18
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