Summary: Righteousness is a gift that you receive when you believe in Jesus Christ as your Savior (Romans 5:17b). Upon believing, God gives you a new born again heart, also known as your inner spirit (Ezekiel 11:19). Jesus then comes to live in you and eternally joins His life to your new spirit; this is what makes you righteous. Your mortal body remains as it was before salvation, still dead because of sin (Romans 8:10a).
Are believers in Jesus Christ righteous people? Like eternal security, this is a controversial issue. By far, the most common teaching is that believers are imputed, or credited, with Christ's righteousness but remain sinners even after salvation. But what does the Bible teach? The answer lies in the little taught and largely unknown truth of the inner and outer "man."
Forgiveness Happened at the Cross
Most people believe that forgiveness and "salvation" are the same thing. They are not. This thinking believes that the Cross of Christ offers the potential for forgiveness, but that you do not realize this forgiveness until after you repent* of your sins and ask Jesus into your heart; when you do, you are then forgiven and "saved." However, the Bible teaches that forgiveness was granted by God because of the Cross of Christ, not your response to it. Forgiveness was God's gift of grace to all people, not only believers. (Colossians 1:20; Mark 3:28; Hebrews 9:26b; Hebrews 10:12). Forgiveness was, therefore, fully and forever resolved for all people 2,000 years ago.
2 Corinthians 5:19 namely, that God was in Christ reconciling the world to Himself, not counting their trespasses against them, and He has committed to us the word of reconciliation.
So then, what is the difference between believers and unbelievers? The answer is that unbelievers do not have is God's life living in them. God's indwelling life is the key to understanding whether believers are truly righteous or only credited with Christ's righteousness.
*Note: The near-universal teaching of repenting from sins to seek forgiveness is not New Covenant. You have no capacity to turn from your sins until after you are saved when God gives you a new heart and puts His life into you. This incorrect teaching is based on Old Covenant repentance where the children of Israel were to turn away from their sin; they were never able to do so and that was the reason for the sacrifices and holy days. New Testament repentance is turning from unbelief to faith in Jesus Christ (Acts 19:4; Mark 1:15).
The Gift of RighteousnessWhen you believe, God literally takes out your old sinful inner spirit and replaces it with a brand new, clean heart (Ezekiel 36:26; Romans 6:6). The old inner you is gone forever; you become a brand new person on the inside (2 Corinthians 5:17). Because your new heart is completely clean, it is a suitable dwelling place for the Spirit of God. Jesus comes to live in you and joins His righteous life eternally to you.
Your righteousness is a gift, and the gift is the person of Jesus Christ living in you. You are righteous because the Righteous One now dwells in you, joined inseparably as one to your born again heart (1 Corinthians 6:17). You have done nothing that makes you righteous; it was God who did it all when you believed in Jesus Christ as Savior.
1 Corinthians 3:16,17b Do you not know that you are a temple of God, and that the Spirit of God dwells in you?  ... for the temple of God is holy, and that is what you are.
Why Your Righteousness is Real, not CreditedYour righteousness is real, not credited or "imputed" as is commonly taught; this is an essential point. Popular teaching says that God credits you with Christ's righteousness, but says that you are still a "sinner." What is overlooked, but should be obvious, is that "sinners" are not part of the family of God. This thinking does not recognize your inner and outer persons (Romans 8:10; 2 Corinthians 4:16). Your inner spirit is absolutely righteous. In fact, you can never sin in your born again heart because Jesus in you can never sin (1 John 3:9).
Your inner spirit is the real "you"; your outer mortal body is your temporary "house" (2 Corinthians 5:2,4). Your body will not enter the kingdom of God because it has not been redeemed and made righteous (1 Corinthians 15:50). To help understand this, consider what will happen when you die. Your body will go to the grave while your inner spirit remains forever joined to Jesus Christ. When Christ returns, you will get a new gloried body that will be compatible with your already redeemed and righteous new spirit (1 Corinthians 15:52,53).
Walking by the Spirit
Since your body is still dead because of sin, you cannot live a righteous life by your own human works; this is the reason you live by faith. Jesus will live out His righteous life in you and do His good works through you. You experience His life as you follow Him in faith.
Galatians 2:20 I have been crucified with Christ; and it is no longer I who live, but Christ lives in me; and the life which I now live in the flesh I live by faith in the Son of God, who loved me, and delivered Himself up for me.
Not only will Christ live through you, walking in His Spirit will keep you from indulging in fleshly behavior.
Galatians 5:16 But I say, walk by the Spirit, and you will not carry out the desire of the flesh.
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