You can answer that way, but native speakers usually don't answer that way. Clive
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AnonymousA: What is that?B: That is my hat.Or "That" should be "It"? Or both are possible and there is not much difference between them or there is? What do you think?I think that both are OK, but neither is particularly natural.
AnonymousA: What is that?B: That is my hat.Or "That" should be "It"?There will be less confusion for you if you just say "It".