So I find this rule a bit odd in the fact that if you short for 45 days or less you can add the dividends paid to your cost basis (which is favorable) but if you hold the short position longer than 45 days you can deduct it only if you itemize your deduction. So, if you don't itemize deductions, can we add it to the basis of the stock? The below statements seem a little conflicting to me.
From Pub 550
Short sales. If you cannot deduct payments you make to a lender in lieu of dividends on stock used in a short sale, the amount you pay to the lender is a capital expense, and you must add it to the basis of the stock used to close the short sale.
See Payments in lieu of dividends, later, for information about deducting payments in lieu of dividends.
Payments in lieu of dividends. If you borrow stock to make a short sale, you may have to remit to the lender payments in lieu of the dividends distributed while you maintain your short position. 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 (Form 1040). See Interest Expenses in chapter 3 for more information.
