diff --git a/libs/sync/snapshot.go b/libs/sync/snapshot.go
index 3fd80368..e06e81c9 100644
--- a/libs/sync/snapshot.go
+++ b/libs/sync/snapshot.go
@@ -165,13 +165,17 @@ func loadOrNewSnapshot(opts *SyncOptions) (*Snapshot, error) {
 }
 
 func (s *Snapshot) diff(all []fileset.File) (change diff, err error) {
-	currentFilenames := map[string]bool{}
 	lastModifiedTimes := s.LastUpdatedTimes
 	remoteToLocalNames := s.RemoteToLocalNames
 	localToRemoteNames := s.LocalToRemoteNames
+
+	// set of files currently present in the local file system and tracked by git
+	localFileSet := map[string]struct{}{}
+	for _, f := range all {
+		localFileSet[f.Relative] = struct{}{}
+	}
+
 	for _, f := range all {
-		// create set of current files to figure out if removals are needed
-		currentFilenames[f.Relative] = true
 		// get current modified timestamp
 		modified := f.Modified()
 		lastSeenModified, seen := lastModifiedTimes[f.Relative]
@@ -207,11 +211,13 @@ func (s *Snapshot) diff(all []fileset.File) (change diff, err error) {
 				change.delete = append(change.delete, oldRemoteName)
 				delete(remoteToLocalNames, oldRemoteName)
 			}
+
 			// We cannot allow two local files in the project to point to the same
 			// remote path
-			oldLocalName, ok := remoteToLocalNames[remoteName]
-			if ok && oldLocalName != f.Relative {
-				return change, fmt.Errorf("both %s and %s point to the same remote file location %s. Please remove one of them from your local project", oldLocalName, f.Relative, remoteName)
+			prevLocalName, ok := remoteToLocalNames[remoteName]
+			_, prevLocalFileExists := localFileSet[prevLocalName]
+			if ok && prevLocalName != f.Relative && prevLocalFileExists {
+				return change, fmt.Errorf("both %s and %s point to the same remote file location %s. Please remove one of them from your local project", prevLocalName, f.Relative, remoteName)
 			}
 			localToRemoteNames[f.Relative] = remoteName
 			remoteToLocalNames[remoteName] = f.Relative
@@ -220,7 +226,7 @@ func (s *Snapshot) diff(all []fileset.File) (change diff, err error) {
 	// figure out files in the snapshot.lastModifiedTimes, but not on local
 	// filesystem. These will be deleted
 	for localName := range lastModifiedTimes {
-		_, exists := currentFilenames[localName]
+		_, exists := localFileSet[localName]
 		if exists {
 			continue
 		}
diff --git a/libs/sync/snapshot_test.go b/libs/sync/snapshot_test.go
index 4995beca..1252dea4 100644
--- a/libs/sync/snapshot_test.go
+++ b/libs/sync/snapshot_test.go
@@ -249,6 +249,43 @@ func TestErrorWhenIdenticalRemoteName(t *testing.T) {
 	assert.ErrorContains(t, err, "both foo and foo.py point to the same remote file location foo. Please remove one of them from your local project")
 }
 
+func TestNoErrorRenameWithIdenticalRemoteName(t *testing.T) {
+	// Create temp project dir
+	projectDir := t.TempDir()
+	fileSet, err := git.NewFileSet(projectDir)
+	require.NoError(t, err)
+	state := Snapshot{
+		LastUpdatedTimes:   make(map[string]time.Time),
+		LocalToRemoteNames: make(map[string]string),
+		RemoteToLocalNames: make(map[string]string),
+	}
+
+	// upload should work since they point to different destinations
+	pythonFoo := testfile.CreateFile(t, filepath.Join(projectDir, "foo.py"))
+	defer pythonFoo.Close(t)
+	pythonFoo.Overwrite(t, "# Databricks notebook source\n")
+	files, err := fileSet.All()
+	assert.NoError(t, err)
+	change, err := state.diff(files)
+	assert.NoError(t, err)
+	assert.Len(t, change.delete, 0)
+	assert.Len(t, change.put, 1)
+	assert.Contains(t, change.put, "foo.py")
+
+	pythonFoo.Remove(t)
+	sqlFoo := testfile.CreateFile(t, filepath.Join(projectDir, "foo.sql"))
+	defer sqlFoo.Close(t)
+	sqlFoo.Overwrite(t, "-- Databricks notebook source\n")
+	files, err = fileSet.All()
+	assert.NoError(t, err)
+	change, err = state.diff(files)
+	assert.NoError(t, err)
+	assert.Len(t, change.delete, 1)
+	assert.Len(t, change.put, 1)
+	assert.Contains(t, change.put, "foo.sql")
+	assert.Contains(t, change.delete, "foo")
+}
+
 func defaultOptions(t *testing.T) *SyncOptions {
 	return &SyncOptions{
 		Host:             "www.foobar.com",