diff --git a/packages/desktop-client/src/components/tags/ManageTags.tsx b/packages/desktop-client/src/components/tags/ManageTags.tsx
index 02e557719a..cb9dc8ae72 100644
--- a/packages/desktop-client/src/components/tags/ManageTags.tsx
+++ b/packages/desktop-client/src/components/tags/ManageTags.tsx
@@ -5,6 +5,7 @@ import { Button } from '@actual-app/components/button';
 import { SvgAdd } from '@actual-app/components/icons/v1';
 import { SvgSearchAlternate } from '@actual-app/components/icons/v2';
 import { Stack } from '@actual-app/components/stack';
+import { Text } from '@actual-app/components/text';
 import { theme } from '@actual-app/components/theme';
 import { View } from '@actual-app/components/view';
 
@@ -31,30 +32,15 @@ export function ManageTags() {
   const [create, setCreate] = useState(false);
   const tags = useTags();
 
-  const defaultTag = useMemo(
-    () => ({
-      id: '*',
-      tag: '*',
-      color: theme.noteTagDefault,
-      description: t('Default tag color'),
-      ...tags.find(tag => tag.tag === '*'),
-    }),
-    [t, tags],
-  );
-
   const filteredTags = useMemo(() => {
     return filter === ''
-      ? [defaultTag, ...tags.filter(tag => tag.tag !== '*')]
+      ? tags
       : tags.filter(tag =>
           getNormalisedString(tag.tag).includes(getNormalisedString(filter)),
         );
-  }, [defaultTag, filter, tags]);
+  }, [filter, tags]);
 
-  const selectedInst = useSelected(
-    'manage-tags',
-    filteredTags.filter(tag => tag.tag !== '*'),
-    [],
-  );
+  const selectedInst = useSelected('manage-tags', filteredTags, []);
 
   const onDeleteSelected = useCallback(async () => {
     dispatch(deleteAllTags([...selectedInst.items]));
@@ -113,12 +99,25 @@ export function ManageTags() {
           {create && (
             <TagCreationRow onClose={() => setCreate(false)} tags={tags} />
           )}
-          <TagsList
-            tags={filteredTags}
-            selectedItems={selectedInst.items}
-            hoveredTag={hoveredTag}
-            onHover={id => setHoveredTag(id ?? undefined)}
-          />
+          {tags.length ? (
+            <TagsList
+              tags={filteredTags}
+              selectedItems={selectedInst.items}
+              hoveredTag={hoveredTag}
+              onHover={id => setHoveredTag(id ?? undefined)}
+            />
+          ) : (
+            <View
+              style={{
+                background: theme.tableBackground,
+                fontStyle: 'italic',
+              }}
+            >
+              <Text style={{ margin: 'auto', padding: '20px' }}>
+                <Trans>No Tags</Trans>
+              </Text>
+            </View>
+          )}
         </View>
         <View
           style={{
diff --git a/packages/desktop-client/src/components/tags/TagCreationRow.tsx b/packages/desktop-client/src/components/tags/TagCreationRow.tsx
index d78304e975..61cdf09730 100644
--- a/packages/desktop-client/src/components/tags/TagCreationRow.tsx
+++ b/packages/desktop-client/src/components/tags/TagCreationRow.tsx
@@ -31,6 +31,8 @@ type TagCreationRowProps = {
   onClose: () => void;
 };
 
+const isTagValid = (tag: string) => tag.match(/^([^#\s]+)$/);
+
 export const TagCreationRow = ({ onClose, tags }: TagCreationRowProps) => {
   const { t } = useTranslation();
   const dispatch = useDispatch();
@@ -64,7 +66,7 @@ export const TagCreationRow = ({ onClose, tags }: TagCreationRowProps) => {
   };
 
   const onAddTag = () => {
-    if (!tag.trim() || !color.trim() || tagNames.includes(tag)) {
+    if (!isTagValid(tag) || !color.trim() || tagNames.includes(tag)) {
       return;
     }
 
@@ -187,7 +189,7 @@ export const TagCreationRow = ({ onClose, tags }: TagCreationRowProps) => {
             style={{ padding: '4px 10px' }}
             onPress={onAddTag}
             data-testid="add-button"
-            isDisabled={!tag || tagNames.includes(tag)}
+            isDisabled={!isTagValid(tag) || tagNames.includes(tag)}
             ref={addButtonRef}
           >
             <Trans>Add</Trans>
diff --git a/packages/desktop-client/src/components/tags/TagEditor.tsx b/packages/desktop-client/src/components/tags/TagEditor.tsx
index bfc5a8f171..1c5bb51b63 100644
--- a/packages/desktop-client/src/components/tags/TagEditor.tsx
+++ b/packages/desktop-client/src/components/tags/TagEditor.tsx
@@ -1,12 +1,11 @@
 import { type RefObject } from 'react';
-import { useTranslation } from 'react-i18next';
 
 import { Button } from '@actual-app/components/button';
 import { ColorPicker } from '@actual-app/components/color-picker';
 
 import { type Tag } from 'loot-core/types/models';
 
-import { createTag, updateTag } from '@desktop-client/queries/queriesSlice';
+import { updateTag } from '@desktop-client/queries/queriesSlice';
 import { useDispatch } from '@desktop-client/redux';
 import { useTagCSS } from '@desktop-client/style/tags';
 
@@ -16,25 +15,16 @@ type TagEditorProps = {
 };
 
 export const TagEditor = ({ tag, ref }: TagEditorProps) => {
-  const { t } = useTranslation();
   const dispatch = useDispatch();
   const getTagCSS = useTagCSS();
 
-  const formattedTag = <>#{tag.tag === '*' ? t('Default') : tag.tag}</>;
+  const formattedTag = <>#{tag.tag}</>;
 
   return (
     <ColorPicker
-      value={tag.color}
+      value={tag.color ?? undefined}
       onChange={color => {
-        dispatch(
-          tag.id !== '*'
-            ? updateTag({ ...tag, color: color.toString('hex') })
-            : createTag({
-                tag: tag.tag,
-                color: color.toString('hex'),
-                description: tag.description,
-              }),
-        );
+        dispatch(updateTag({ ...tag, color: color.toString('hex') }));
       }}
     >
       <Button variant="bare" className={getTagCSS(tag.tag)} ref={ref}>
diff --git a/packages/desktop-client/src/components/tags/TagRow.tsx b/packages/desktop-client/src/components/tags/TagRow.tsx
index a53fe436d3..9e51000f79 100644
--- a/packages/desktop-client/src/components/tags/TagRow.tsx
+++ b/packages/desktop-client/src/components/tags/TagRow.tsx
@@ -1,9 +1,7 @@
 import React, { memo, useRef } from 'react';
 import { Trans, useTranslation } from 'react-i18next';
 
-import { Button } from '@actual-app/components/button';
 import { SvgArrowThinRight } from '@actual-app/components/icons/v1';
-import { SvgRefreshArrow } from '@actual-app/components/icons/v2';
 import { Menu } from '@actual-app/components/menu';
 import { Popover } from '@actual-app/components/popover';
 import { Text } from '@actual-app/components/text';
@@ -24,11 +22,7 @@ import { useContextMenu } from '@desktop-client/hooks/useContextMenu';
 import { useNavigate } from '@desktop-client/hooks/useNavigate';
 import { useProperFocus } from '@desktop-client/hooks/useProperFocus';
 import { useSelectedDispatch } from '@desktop-client/hooks/useSelected';
-import {
-  createTag,
-  deleteTag,
-  updateTag,
-} from '@desktop-client/queries/queriesSlice';
+import { deleteTag, updateTag } from '@desktop-client/queries/queriesSlice';
 import { useDispatch } from '@desktop-client/redux';
 
 type TagRowProps = {
@@ -58,15 +52,7 @@ export const TagRow = memo(
     const navigate = useNavigate();
 
     const onUpdate = (description: string) => {
-      dispatch(
-        tag.id !== '*'
-          ? updateTag({ ...tag, description })
-          : createTag({
-              tag: tag.tag,
-              color: tag.color,
-              description,
-            }),
-      );
+      dispatch(updateTag({ ...tag, description }));
     };
 
     const onShowActivity = () => {
@@ -116,7 +102,7 @@ export const TagRow = memo(
             items={[
               {
                 name: 'delete',
-                text: tag.tag !== '*' ? t('Delete') : t('Reset'),
+                text: t('Delete'),
               },
             ]}
             onMenuSelect={name => {
@@ -131,36 +117,19 @@ export const TagRow = memo(
             }}
           />
         </Popover>
-        {tag.tag !== '*' ? (
-          <SelectCell
-            exposed={hovered || selected || focusedField === 'select'}
-            focused={focusedField === 'select'}
-            onSelect={e => {
-              dispatchSelected({
-                type: 'select',
-                id: tag.id,
-                isRangeSelect: e.shiftKey,
-              });
-            }}
-            selected={selected}
-          />
-        ) : (
-          <Cell width={20} plain>
-            <Button
-              variant="bare"
-              type="button"
-              style={{
-                borderWidth: 0,
-                backgroundColor: 'transparent',
-                marginLeft: 'auto',
-              }}
-              onPress={() => dispatch(deleteTag(tag))}
-              ref={resetButtonRef}
-            >
-              <SvgRefreshArrow width={13} height={13} />
-            </Button>
-          </Cell>
-        )}
+
+        <SelectCell
+          exposed={hovered || selected || focusedField === 'select'}
+          focused={focusedField === 'select'}
+          onSelect={e => {
+            dispatchSelected({
+              type: 'select',
+              id: tag.id,
+              isRangeSelect: e.shiftKey,
+            });
+          }}
+          selected={selected}
+        />
 
         <Cell width={250} plain style={{ padding: '5px', display: 'block' }}>
           <TagEditor tag={tag} ref={colorButtonRef} />
@@ -184,28 +153,27 @@ export const TagRow = memo(
             placeholder: t('No description'),
           }}
         />
-        {tag.tag !== '*' && (
-          <Cell width="auto" style={{ padding: '0 10px' }} plain>
-            <CellButton
-              style={{
-                borderRadius: 4,
-                padding: '3px 6px',
-                backgroundColor: theme.noticeBackground,
-                border: '1px solid ' + theme.noticeBackground,
-                color: theme.noticeTextDark,
-                fontSize: 12,
-                cursor: 'pointer',
-                ':hover': { backgroundColor: theme.noticeBackgroundLight },
-              }}
-              onSelect={onShowActivity}
-            >
-              <Text style={{ paddingRight: 5 }}>
-                <Trans>View Transactions</Trans>
-              </Text>
-              <SvgArrowThinRight style={{ width: 8, height: 8 }} />
-            </CellButton>
-          </Cell>
-        )}
+
+        <Cell width="auto" style={{ padding: '0 10px' }} plain>
+          <CellButton
+            style={{
+              borderRadius: 4,
+              padding: '3px 6px',
+              backgroundColor: theme.noticeBackground,
+              border: '1px solid ' + theme.noticeBackground,
+              color: theme.noticeTextDark,
+              fontSize: 12,
+              cursor: 'pointer',
+              ':hover': { backgroundColor: theme.noticeBackgroundLight },
+            }}
+            onSelect={onShowActivity}
+          >
+            <Text style={{ paddingRight: 5 }}>
+              <Trans>View Transactions</Trans>
+            </Text>
+            <SvgArrowThinRight style={{ width: 8, height: 8 }} />
+          </CellButton>
+        </Cell>
       </Row>
     );
   },
diff --git a/packages/desktop-client/src/style/tags.ts b/packages/desktop-client/src/style/tags.ts
index 204aef853d..76dd9b870c 100644
--- a/packages/desktop-client/src/style/tags.ts
+++ b/packages/desktop-client/src/style/tags.ts
@@ -24,7 +24,7 @@ export function useTags() {
   return tags;
 }
 
-function getTagCSSColors(theme: Theme, color?: string) {
+function getTagCSSColors(theme: Theme, color?: string | null) {
   if (theme === 'light') {
     return [
       color ? `${color} !important` : themeStyle.noteTagText,
@@ -55,9 +55,7 @@ export function useTagCSS() {
       const [color, backgroundColor, backgroundColorHovered] = getTagCSSColors(
         theme,
         // fallback strategy: options color > tag color > default color > theme color (undefined)
-        options.color ??
-          (tags.find(t => t.tag === tag)?.color ||
-            tags.find(t => t.tag === '*')?.color),
+        options.color ?? tags.find(t => t.tag === tag)?.color,
       );
 
       return css({
diff --git a/packages/loot-core/migrations/1749799110001_tags_tombstone.sql b/packages/loot-core/migrations/1749799110001_tags_tombstone.sql
new file mode 100644
index 0000000000..f061e79f13
--- /dev/null
+++ b/packages/loot-core/migrations/1749799110001_tags_tombstone.sql
@@ -0,0 +1,5 @@
+BEGIN TRANSACTION;
+
+ALTER TABLE tags ADD COLUMN tombstone integer DEFAULT 0;
+
+COMMIT;
diff --git a/packages/loot-core/src/server/db/index.ts b/packages/loot-core/src/server/db/index.ts
index 781335b139..263825cd95 100644
--- a/packages/loot-core/src/server/db/index.ts
+++ b/packages/loot-core/src/server/db/index.ts
@@ -806,6 +806,15 @@ function toSqlQueryParameters(params: unknown[]) {
 }
 
 export function getTags() {
+  return all<DbTag>(`
+    SELECT id, tag, color, description
+    FROM tags
+    WHERE tombstone = 0
+    ORDER BY tag
+  `);
+}
+
+export function getAllTags() {
   return all<DbTag>(`
     SELECT id, tag, color, description
     FROM tags
@@ -818,9 +827,7 @@ export function insertTag(tag): Promise<DbTag['id']> {
 }
 
 export async function deleteTag(tag) {
-  return transaction(() => {
-    runQuery(`DELETE FROM tags WHERE id = ?`, [tag.id]);
-  });
+  return delete_('tags', tag.id);
 }
 
 export function updateTag(tag) {
diff --git a/packages/loot-core/src/server/db/types/index.ts b/packages/loot-core/src/server/db/types/index.ts
index 9fc6b2bc8c..a8325a1ec3 100644
--- a/packages/loot-core/src/server/db/types/index.ts
+++ b/packages/loot-core/src/server/db/types/index.ts
@@ -328,6 +328,7 @@ export type DbViewSchedule = {
 export type DbTag = {
   id: string;
   tag: string;
-  color: string;
+  color?: string | null;
   description?: string | null;
+  tombstone: 1 | 0;
 };
diff --git a/packages/loot-core/src/server/tags/app.ts b/packages/loot-core/src/server/tags/app.ts
index de136e8100..4c7a285517 100644
--- a/packages/loot-core/src/server/tags/app.ts
+++ b/packages/loot-core/src/server/tags/app.ts
@@ -28,12 +28,26 @@ async function getTags(): Promise<Tag[]> {
 
 async function createTag({
   tag,
-  color,
+  color = null,
   description = null,
 }: Omit<Tag, 'id'>): Promise<Tag> {
+  const allTags = await db.getAllTags();
+
+  const { id: tagId = null } = allTags.find(t => t.tag === tag) || {};
+  if (tagId) {
+    await db.updateTag({
+      id: tagId,
+      tag,
+      color,
+      description,
+      tombstone: 0,
+    });
+    return { id: tagId, tag, color, description };
+  }
+
   const id = await db.insertTag({
     tag: tag.trim(),
-    color: color.trim(),
+    color: color ? color.trim() : null,
     description,
   });
 
@@ -66,7 +80,7 @@ async function findTags(): Promise<Tag[]> {
   for (const { notes } of taggedNotes) {
     for (const [_, tag] of notes.matchAll(/(?<!#)#([^#\s]+)/g)) {
       if (!tags.find(t => t.tag === tag)) {
-        tags.push(await createTag({ tag, color: '' }));
+        tags.push(await createTag({ tag }));
       }
     }
   }
diff --git a/packages/loot-core/src/types/models/tags.ts b/packages/loot-core/src/types/models/tags.ts
index e4f2da9b63..c5699e7036 100644
--- a/packages/loot-core/src/types/models/tags.ts
+++ b/packages/loot-core/src/types/models/tags.ts
@@ -1,6 +1,6 @@
 export interface Tag {
   id: string;
   tag: string;
-  color: string;
+  color?: string | null;
   description?: string | null;
 }
diff --git a/upcoming-release-notes/5387.md b/upcoming-release-notes/5387.md
new file mode 100644
index 0000000000..304157ef8c
--- /dev/null
+++ b/upcoming-release-notes/5387.md
@@ -0,0 +1,6 @@
+---
+category: Bugfix
+authors: [youngcw, pogman-code]
+---
+
+Fix tags not syncing properly