George, I think you may have this backwards. It sounds like the dividends are added to my basis only if I held the position 46 days or less (which is the case for me). My 1099 did not do this so I need to do it manually in TurboTax. Here is the language from IRS Pub. 550 regarding the treatment of dividends the investor pays while being short a dividend paying stock:
You can deduct these payments only if you hold the short sale open at least 46 days (more than 1 year in the case of an extraordinary dividend, as defined later) and you itemize your deductions.
You deduct these payments as investment interest on Schedule A.
If you close the short sale by the 45th day after the date of the short sale (1 year or less in the case of an extraordinary dividend), you cannot deduct the payment in lieu of the dividend you make to the lender. Instead, you must increase the basis of the stock used to close the short sale by that amount.
