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I currently have a 1.25 gallon fuel tank. Would there be a problem If I put a bigger tank on, I heard the tank has to be higher than the carb.

Yes that wouldn't be a problem, if it doesn't have a fuel pump it will need to be higher than carb.
You could also add a vacuum pulse pump, you can tap into oil dipstick tube for vacuum and with that put tank lower than carb.