I think the ESV makes this clearer than the KJV. Too many people have twisted what the KJV says here to mean the believer can attain sinless perfection on this earth. Of course if a person were to read the entire book, there is no way they can come to that conclusion, yet that is what happens when you cherry-pick Scripture.
Basically, this passage tells us that if a person lives in habitual sin...a life characterized by sin, that they are not a child of God. This should be really sobering to those who say they are Christians but flagrantly violate Scripture and make it a habitual part of their lives. Take a look at some of these Scriptures:
For this reason God gave them up to dishonorable passions. For their women exchanged natural relations for those that are contrary to nature; and the men likewise gave up natural relations with women and were consumed with passion for one another, men committing shameless acts with men and receiving in themselves the due penalty for their error. And since they did not see fit to acknowledge God, God gave them up to a debased mind to do what ought not to be done. They were filled with all manner of unrighteousness, evil, covetousness, malice. They are full of envy, murder, strife, deceit, maliciousness. They are gossips, slanderers, haters of God, insolent, haughty, boastful, inventors of evil, disobedient to parents, foolish, faithless, heartless, ruthless. Though they know God’s righteous decree that those who practice such things deserve to die, they not only do them but give approval to those who practice them. (Romans 1:26-32 ESV)
I wrote to you in my letter not to associate with sexually immoral people—
But now I am writing to you not to associate with anyone who bears the name of brother if he is guilty of sexual immorality or greed, or is an idolater, reviler, drunkard, or swindler—not even to eat with such a one. For what have I to do with judging outsiders? Is it not those inside the church whom you are to judge? God judges those outside. “Purge the evil person from among you.” (1 Corinthians 5:9, 11-13 ESV)
This is just a couple passages and the following things are mentioned or inferred:
Haters of God
Inventors of evil
Disobedient to parents
Not only doing things above but approving those who do them
Whew! That is quite a list and that is only from two passages of Scripture! I'm sure there must be more. The point from the 1 John text is that a person who makes it their life style to do any of these sins and continue in it unrepentantly is not of God. That is pretty serious stuff.
Now the point of all this is not so we can sit back on our holy high horse and point fingers at others and check them off on our "Child of God/Child of The Devil" list. The point here is that we need to examine our own lives and see where we are spiritually first. Note that gossip and boasting and being greedy are all included in this list.
I had a person get angry and say, "You mean to tell me that disobedience to parents is worthy of the death penalty??" Of course not in our society today in this world, however, in God's economy, sin is sin and one is just as bad as the other in this list. Do you know why? It's because ALL SIN is missing the mark of God's holiness and righteousness. ALL SIN is against God.
But it doesn't end there. God is loving and just and righteous. This is why Jesus came and kept all the law perfectly in our place, died and paid the penalty for our sin and rose again victorious over death so that we might be saved from the wrath of God to come against those who flagrantly sin against Him.
Repent and call on Him to save you and then live a life of purity through Him who will strengthen you to do it.