It indeed lies in the Schwartz space, which is the space $$
\mathcal{S} := \left\{f: \mathbb{R} \to \mathbb{R} \,:\,
\forall \alpha,\beta \in \mathbb{N}\,
\sup_{x\in\mathbb{R}} \left|x^\alpha f^{(\beta)}(x)\right| < \infty \right\}
$$
where $f^{(n)}$ denotes the $n$-th derivative of $f$. This definition looks a bit intimidating at first, but it's easy to understand. A function $f$ lies in $\mathcal{S}$ if it decays rapidly, i.e. faster than any polynomial grows (thus $x^nf(x)$ is bounded for every n), and if the same is true for every derivative of $f$.
This space is closed under fourier transform, i.e. if $f \in S$, then so is the fourier transform $\mathcal{F}(f)$. The same is true from the reverse fourier transform. The space of compactly supported $C^\infty$ functions is quite obviously a subspace of $\mathcal{S}$, hence it's image under $\mathcal{F}$ is thus also a subspace of $\mathcal{S}$.
The problem with your reasoing is that you're thinking about pointwise limits. Under those, $\mathcal{S}$ isn't complete, so knowing something about the limit doesn't tell you much about $\mathcal{S}$. There are topologies on $\mathcal{S}$ which make it a complete space, and under those you indeed cannot approximate the step function by functions in $\mathcal{S}$. The "trick" of those topologies is basically to force convergence of all the derivatives, which e.g. prevents you from approximating any discontinous functions.