diff --git a/migrations.py b/migrations.py
index 3575fe1..b4918cb 100644
--- a/migrations.py
+++ b/migrations.py
@@ -325,3 +325,30 @@ async def m001_initial(db):
                 "description": description
             }
         )
+
+
+async def m002_add_account_is_active(db):
+    """
+    Add is_active field to accounts table for soft delete functionality.
+
+    This enables marking accounts as inactive when they're removed from Beancount
+    while preserving historical data and permissions. Inactive accounts:
+    - Cannot have new permissions granted
+    - Are filtered out of default queries
+    - Can be reactivated if account is re-added to Beancount
+
+    Default: All existing accounts are marked as active (TRUE).
+    """
+    await db.execute(
+        """
+        ALTER TABLE castle_accounts
+        ADD COLUMN is_active BOOLEAN NOT NULL DEFAULT TRUE
+        """
+    )
+
+    # Create index for faster queries filtering by is_active
+    await db.execute(
+        """
+        CREATE INDEX idx_castle_accounts_is_active ON castle_accounts (is_active)
+        """
+    )
diff --git a/models.py b/models.py
index 4386027..c42d5d0 100644
--- a/models.py
+++ b/models.py
@@ -36,6 +36,7 @@ class Account(BaseModel):
     description: Optional[str] = None
     user_id: Optional[str] = None  # For user-specific accounts
     created_at: datetime
+    is_active: bool = True  # Soft delete flag
 
 
 class CreateAccount(BaseModel):
@@ -322,6 +323,7 @@ class AccountWithPermissions(BaseModel):
     description: Optional[str] = None
     user_id: Optional[str] = None
     created_at: datetime
+    is_active: bool = True  # Soft delete flag
     # Only included when filter_by_user=true
     user_permissions: Optional[list[PermissionType]] = None
     inherited_from: Optional[str] = None  # Parent account ID if inherited