You are correct that Material Participation in short-term rentals is non-passive, so the losses should offset W-2 income.
But TurboTax is not set up for this. If you use the CD/downloaded version, you should be able to access the worksheet to manually check the box for "other passive exceptions". But you can not do that with the online version of TurboTax.
If this is your ONLY rental, you may be able to say you are a Real Estate Professional, and I think it should do the same thing.
