Usually if the item or object being inquired about belongs to the person answering the question, he will respond with "it is" or "it's" rather than "that is."
For example, Fred is in his driveway washing a rusty, dilapidated old car. His friend John stops by and asks with a slight laugh "What the heck is that?" Fred replies with pride, "It's my new car." "New?" John scoffs. "It looks 10 years old at least." "Well, it's new to me, I saved my money for a whole year to buy this."
Second example: John and Brian arrive at Fred's house and see Fred washing this beat-up old vehicle. "What is that?!" Brian asks John. "That," John replies with a sigh, "is Fred's new car. Don't joke about it, he's very proud of it."
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